Last week, the fashion industry woke up to a plunge in European shares, of which British luxury brand Burberry was one of its victims.
Shares dived after the company’s new Chief Executive Marco Gobbetti had introduced his plan to shift further up-market with more high-end products, fast-changing fashion and refurbished stores, leaving investors focused on the cost of the new strategy.
The announcement caused shares in the 161-year-old retailer to plummet 9.9 percent, despite reporting a 17 percent jump in half-year profits to £185million and a 4 percent rise in sales to £1.3billion.
The company, which announced last week that Christopher Bailey, the designer who turned Burberry into a global label, would leave next year, said it would cut sales to non-luxury stores, initially in the United States, enhancing the brand’s exclusivity.
The company, which still manufactures its trademark trench coats in northern England, will refresh ranges more often, constantly bringing out new designs to meet the expectations of young consumers, and will also focus on higher-margin handbags.
But shares in the group fell as much as 14 percent as the company outlined the cost of the transformation, including rationalizing distribution and refurbishing its stores. They were trading down nearly 10 percent at 17.89 pounds by 1520 GMT.
Gobbetti, who took over as CEO from Bailey in July, said Burberry had been outpaced in recent years by French and Italian rivals in the luxury fashion segment of the market.
“We must sharpen our brand position, we must move up to plant ourselves firmly in luxury,” he said on Thursday.
The company must “respond to customers who want fashion and newness,” he said.
He said some products, like a simple polo shirt, needed to be priced about 50 percent higher to match other luxury players.