Burberry Group PLC shares slumped as it reported a slowdown in UK sales in the second quarter and unveiled a new strategy to transform the business amongst a tough retail market. In the new company strategy, the luxury fashion retailer declared its intentions to deliver additional cost savings by reducing its product ranges and closing down non-performing stores in ‘unluxurious areas’.
Marco Gobbetti, who succeeded Christopher Bailey as chief executive in July, said the group would move even further upmarket and establish itself “firmly in luxury” in an effort to improve margins.
“Now is the right time for Burberry to implement the next phase of its transformation. By re-energising our product and customer experience to establish our position firmly in luxury, we will play in the most rewarding, enduring segment of the market. We have the foundations to build on and the team to execute our plans. This will enable us to drive sustainable growth and higher margins over time, whilst continuing to deliver attractive returns to shareholders.”
As the company goes through a restructuring period, it expects revenue and adjusted operating margin to be “broadly stable” year-on-year at constant exchange rates in fiscal years 2019 and 2020.
The Burberry Group forecasts the transformation programme will achieve cost savings of £100m in 2019 and £120m in 2020. In addition to earmarking extra funds for capital expenditure, Mr Gobbetti said he would pull out of some wholesale channels and retail channels that did not match his luxury aspirations. That could hit revenues, especially in the US, where Burberry relies heavily on the country’s fading department store sector for sales.