The external environment for the luxury sector has remained challenging and underlying cost inflation pressures persist (see Market Overview on page 26 of the full AR PDF). In this context, Burberry has been accelerating its productivity and efficiency agenda, especially looking at its ways of working. Burberry has also been addressing how to optimise future organic revenue growth opportunities and the resulting investment plans.
The Burberry brand is strong, driven by a blend of heritage and innovation, expressed through its iconic products and fashion newness. Looking ahead, there is opportunity to enhance this existing brand strength through greater consistency and clarity across customer groups and markets.
Burberry has identified significant growth opportunities across its existing channels, products and regions. Central to this are plans to enhance growth and to improve productivity in the following areas:
The key output from this work is summarised below.
Product: clear opportunity in product
Great product is the foundation of Burberry’s growth and productivity goals. Burberry has a broad product offer, with strength in both heritage and fashion, across genders and age groups. However, the assortment is generally wider than its peers and there is an opportunity to simplify this to give greater visibility to fashion and newness, while tailoring it more effectively for local needs. To address this, Burberry is introducing end-to-end category management for key products. Following the successful re-launch of Burberry’s heritage trench coat and cashmere scarves, the next area of focus is bags, where Burberry is under-penetrated compared to its peers. In 2016/17, the collection will be re-invented around a new pillar and shape strategy, with marketing targeted around the Patchwork and Banner bags
and the Rucksack, ahead of major new product launches in 2017/18. Burberry will employ a phased approach to other core product categories.
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Retail: driving retail productivity online and offline
Burberry’s business model has evolved from licensing, to wholesale to retail, which now accounts for 73% of Group revenue. There is a significant opportunity to improve Burberry’s end-to-end retail disciplines as part of a broader push towards omni-channel excellence as the next stage of its evolution. This includes a greater focus on local customers with the aim of driving loyalty by leveraging Burberry’s customer insight capabilities, with investment prioritised in selected cities. Improving sales densities, conversion and customer retention will be among the key measures of success.
Priority retail initiatives will include the following.
- Retail excellence – The implementation of a major retail excellence programme centred on all aspects of service and training, customer cultivation and retention, in-store operations and targeted product offering. In 2016/17, this will include increased investment in training, the development of an improved digital selling tool for sales associates and the aim to increase by 20% the number of private client sales associates.
- Extending digital prowess into e-commerce leadership – While Burberry is recognised as a digital leader in the luxury sector, it plans to ensure that digital remains the clear point of differentiation for Burberry with scope to be even more ambitious commercially. The focus will be on continuing to grow Burberry.com through increasing conversion, particularly mobile, driving penetration of e-commerce, particularly in Asia, while integrating and improving customer experiences across online and offline. Burberry will also actively grow with third-party digital players. In 2016/17, this will include the re-launch of Burberry.com (improving content and functionality), the introduction of a customer app and further investment in localisation of sites in Asia.
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Process: improving efficiency through changes in ways of working
To capitalise on the opportunities set out above Burberry plans to change its ways of working, its processes and cost base. Burberry has undertaken an in-depth review of its operating model, including benchmarking, to ensure that the organisation is fit to deliver its ambitious plans and can fund growth. In this regard Burberry will do the following.
- Reduce complexity and inefficiency by simplifying processes.
- Improve both global consistency and local insight, by removing duplication across Group functions and between the regions and corporate centre.
- Prioritise investment behind the biggest growth opportunities.
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Financial ambition to FY 2019
Looking forward, Burberry believes that these initiatives will enable Burberry to again outperform sector growth in the £200bn global luxury market, creating further shareholder value.
It is expected that these product and retail initiatives will deliver strong organic growth, with outperformance accelerating over time including the following.
- Improvements in mainline retail productivity which are expected to drive about half the revenue growth over the three-year period.
- E-commerce initiatives which are expected to account for about another third of revenue growth.
- The continued improvement of the quality of Burberry’s business, further rationalising traditional wholesale distribution while growing with key partners and reducing the weight of outlet stores.
- To drive this outperformance, Burberry will invest about £10m in FY 2017 and then about £20m – £25m per annum for the next two years in retail, digital and enhancing critical capabilities.
Burberry has also identified a programme of actions to deliver at least £100m of annualised cost savings by FY 2019. This is equivalent to about 10% of the Group’s operating expenses excluding fixed rent and depreciation.
- Broadly half of the cost savings are expected to come from significant changes in the Group’s ways of working, by reducing complexity, simplifying processes and eliminating duplication.
- The plan is to deliver around £20m of cost savings in FY 2017.
- The associated one-off costs, which are largely cash, are expected to total about £60m across the first two years.
Assuming these ambitious targets for growth are met Burberry will also start to rebuild the charge for new performance-related pay, at a cost of about £20m, in addition to the existing charge of about £20m in FY 2017.
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Strategic progress during 2015/16
Progress on the Group’s core strategies during 2015/16 is set out on the following pages:
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