Strategy and Mission

Leveraging the franchise
Intensifying the non-apparel development
Accelerating retail-led growth
Investing in under-penetrated markets
Pursuing operational excellence

LEVERAGING THE FRANCHISE

Through more coordinated use of brand assets and greater integration of its global organisation, Burberry has the opportunity to enhance consumer responsiveness and operate more efficiently and effectively. This potential lies in both the front end and back-of-house operations.

The front end comprises everything the consumer sees from products to marketing imagery to stores. Key highlights for 2008/09 include:

  • Maintaining brand momentum. Consistent projection of Burberry's distinctive luxury message across all mediums is a core objective. In December 2008, the Group relocated to a new global headquarters in central London. Designed internally, the building is a comprehensive expression of the Burberry brand - for customers, partners and employees.
  • Reinforcing outerwear heritage and leadership. As the brand's defining category, outerwear innovation remains the top product priority. In 2008/09, Burberry continued to intensify under-developed outerwear segments. In womenswear, for example, the Group took its packable trench coat strategy to scale through the creation and retail presentation of a full range of colours and styles. In menswear, the team intensified focus on the more modern, fitted and higher fashion segment of its business.
  • Further reshaping the product pyramid. Burberry continues to create clear distinctions between its Prorsum (runway), London Collection (wear to work) and Lifestyle (wear at weekend) lines. During 2008/09, the Burberry Beat check was launched as a key branding platform for the London Collection ranges. Within Lifestyle, Burberry continued to contemporise the assortment, through further development of Burberry Sport and building a core denim programme.
  • Capitalising on menswear opportunity. For most of its history, menswear dominated Burberry's sales. While womenswear took the lead during the brand's revitalisation over the last decade, Burberry sees substantial opportunity to develop its menswear business. During 2008/09, menswear continued its transition from legacy product licences, strengthened its tailoring offering and enhanced dedicated marketing initiatives.
  • Building childrenswear. Currently a small business for Burberry, the Group believes the highly fragmented childrenswear sector offers substantial opportunity for the brand in all markets. From its initial operation, the childrenswear team continued to develop a global product assortment and build the required organisation. Childrenswear revenue increased over 50% in the year and the Group began testing dedicated childrenswear stores.
  • Enhancing marketing. The continuous enhancement of marketing and PR functions is a key objective of the Group. In the year, Burberry intensified efforts in the rapidly evolving digital arena through a reallocation of media spend and added dedicated human resources.
  • Optimising licensing. Through its licensing operations, Burberry leverages its brand management, design and marketing expertise in categories requiring the specialised skills of partners. The Group has global product licences for the fragrance, eyewear and watch categories. Following the successful launch of Burberry The Beat for Women last year, the successful launch of Burberry The Beat for Men commenced in the second half of 2008/09.

The back-of-house operations comprise the infrastructure and functional components required for the success of Burberry's front end. Burberry applies the expertise from one area of its operations to others in order to optimise performance.

  • Spain modernisation. In 2008/09, Burberry began to modernise functions in Spain in line with actions taken in the Group's central operations during the previous two years. Core to this has been restructuring the local supply chain. During the year, Spain began transition from a sourcing base dominated by small, single function suppliers to large, vertically integrated resources - a transition the Group has made centrally since 2006.

KPI: Total revenue growth measures the appeal of the brand to consumers, be it through Burberry stores or those of its department store or specialty retail customers.

In 2008/09, in challenging and volatile markets, Burberry's revenue was £1,202m - a 7% underlying increase on the previous year. Sales through the retail channel increased by 14%, in wholesale by 2%, while licensing declined by 9%.

INTENSIFYING NON-APPAREL DEVELOPMENT

Intensify, focus on and invest in under-penetrated non-apparel categories to further leverage Burberry's unique positioning, design and merchandising expertise and iconic branding through investment in product development, marketing and supply chain.

Non-apparel was again Burberry's fastest growing product division in 2008/09, and yet still offers substantial room for further growth given Burberry's relatively low market share in certain categories.

  • Handbags. In response to a consumer shift toward a more timeless aesthetic, Burberry rebalanced the fashion/heritage mix of its handbag assortment. This included innovative interpretations of iconic branding, as well as new and elevated expressions of classic styles.
  • Shoes. Shoes grew strongly in 2008/09 based on the previous investment in design, technical product expertise and supply chain functions. Through the year, the team has continued to build out the complete product pyramid while developing core items to drive the growth of this category.
  • Men's non-apparel. Although currently a small category for Burberry, the Group believes this is a key area of opportunity. Burberry continues to build on this opportunity through expanding the product offering, including testing luggage.
  • Product-specific marketing. Non-apparel categories continued to receive marketing and PR focus via prominence on the runway, editorial priority and heightened presence in global advertising campaigns. During 2008/09, Burberry introduced product-specific advertising imagery for non-apparel, including e-brochures, in order to support these strategies.
  • Partnership buy. Burberry initiated its partnership buy model for non-apparel with the Autumn/Winter 2009 season. The partnership buy is a new, more collaborative approach to assortment development in which Burberry's regional buying teams work directly with central design teams throughout the product development process. The model's primary objectives are to enhance efficiency through reduced development expenses and sourcing leverage, increase retail sell-through with more targeted purchasing and consistency of brand statements across geographic regions.
  • Japanese non-apparel joint venture. Burberry continues to evolve the non-apparel business model in Japan, which to date has been primarily operated by licence partners focusing on a domestic, premium-priced offering. In November 2008, Burberry entered into a joint venture agreement to develop the retail distribution of Burberry's international luxury accessories in Japan. The organisation has been established and plans to begin operations in 2009/10.

KPI: Growth in non-apparel revenue measures the success of Burberry's initiatives in this category, which includes handbags, small leather goods, scarves, shoes, belts and jewellery.

In 2008/09, non-apparel revenue increased by 12%, compared to 7% for Burberry as a whole. Non-apparel accounted for 33% of retail and wholesale revenue, compared to 32% last year.

ACCELERATING RETAIL-LED GROWTH

Shift company culture and processes from a static wholesale model to a dynamic retail model. Retail-led growth refers not only to the operation of Burberry's own stores, but also to a fundamental shift in the Group's operating culture.

Retail contributed over half of the total Group revenue in 2008/09 for the first time, reflecting the Group's emphasis on this channel. Burberry continues to move from a relatively static, traditional, wholesale structure to a more dynamic, retail culture and mindset. This more consumer-centric, responsive organisation is having a positive impact on directly operated stores, franchise partners, wholesale customers and licensing partners worldwide.

Centrally, Burberry continues to work on:

  • Focused collections. Reorientating design and merchandising toward more disciplined, style-efficient and balanced collections.
  • Flow frequency. Increasing the frequency of new goods flowing to stores.
  • Replenishment. Developing a more extensive and responsive replenishment programme in all product divisions, while evolving in-store visual merchandising and processes to support.

Looking to the retail stores, Burberry remains focused on:

  • Enhancing store productivity. Through concentration on operational activities, such as replenishment, planning, merchandising, fixturing and visual, Burberry continues to drive store productivity. In addition, Burberry has developed and piloted a sales and service programme which will be implemented globally in retail stores through 2009/10.
  • Accelerating new store openings. In 2008/09, Burberry continued new store roll-out with 14% net new space added during the year. This included five standalone childrenswear stores as Burberry looks to grow this product area.
  • Continuing e-commerce development. Burberry now operates e-commerce in the United States and across 26 European countries. Burberry continues to look to develop and scale its business in this high-growth channel.
  • Upgrading store image. The Group continues to renovate high profile locations worldwide with a brighter, modern aesthetic and more efficient and productive design concept.

KPI: Growth in retail revenue includes comparable store sales growth, which measures growth in productivity of existing stores; plus sales from new space.

In 2008/09, comparable store sales increased by 1% (H1 up 3%; H2 down 1%) - a solid performance as global economic conditions deteriorated throughout the year. The balance of revenue growth was driven by new space, which increased 14% on average during the year.

KPI: Number of stores measures the number of Burberry directly operated stores around the world.

The number of stores directly operated by Burberry increased by over 50 in 2008/09, including a net 22 more mainline stores and a net 22 concessions around the world. The majority of the new mainline stores were in the Americas and Middle East.

INVESTING IN UNDER-PENETRATED MARKETS

Focus on and invest in under-penetrated markets. For Burberry, these under-penetrated markets consist of both developed markets, like the United States, and emerging markets including China, India, the Middle East and Russia. All distribution channels (retail, wholesale and licensing) are used to optimise these opportunities.

Americas
The United States continues to provide significant opportunity for the Group to increase market share. In 2008/09, Burberry opened a net ten new stores (including its first store in Canada and two childrenswear standalone test stores), and completed three major renovations. In wholesale, Burberry further professionalised the organisation to work more closely with its large department store customers. In addition, during the year, the newly created Americas region took ownership of the Latin American markets and integration is now in progress. In April 2009, the Americas organisation moved into its new regional headquarters at 444 Madison Avenue with a rare outdoor marketing opportunity to feature Burberry.

Emerging Markets
In 2008/09, Burberry achieved a 50% increase in revenue from key emerging economies including China, the Middle East, Russia and India. These markets now contribute 9% of sales, up from 6% in 2007/08. Historically, Burberry has operated in these markets through local partners who possess the specific knowledge and resources required to develop the brand in their respective regions. In September 2008, Burberry entered a joint venture with its main partner in the Middle East to manage retail and wholesale operations in certain key markets. Since inception, Burberry Middle East has opened four stores, including two standalone childrenswear stores. Burberry continues to open stores with franchise partners in other markets, with a net eight stores opening last year, including a net two in China and the first significant stores in India.

KPI: Number of stores in Emerging Markets measures the reach of the Burberry brand in these high potential countries.

Burberry added a net 12 stores in Emerging Markets, of which eight stores were opened in conjunction with its local partners. Of the total, 81 are operated under franchise and ten by the Burberry Middle East joint venture.

In the Americas, which Burberry has also identified as an under-penetrated market, underlying retail and wholesale revenue increased by 9% in 2008/09, although the market became much more difficult from the second half.

PURSUING OPERATIONAL EXCELLENCE

Burberry continues to pursue its goal to be recognised as much for operational expertise as for product and marketing excellence.

Key initiatives for 2008/09 include:

  • Global cost efficiency programme. In January 2009, Burberry announced a global cost efficiency programme to deliver annual savings of about £50m to underpin profitability in 2009/10 and beyond. The savings are derived from process efficiencies, further evolving the supply chain, including manufacturing, and streamlining other operations around the world. The implementation of this programme is now well advanced and tracking to plan.
  • Global IT programme implementation. The global IT programme, based on SAP technology, continues to be rolled out to the regions, with retail and wholesale distribution implementations in Hong Kong and the United States. The technology is now live in 15 countries, with approximately 75% of retail/wholesale revenue now processed through SAP. Over 80% of mainline stores are converted, giving greater visibility from design to the consumer.
  • Continued modernisation of supplier base. The Group continues to modernise its supplier base through the move to fewer, larger, vertically integrated suppliers.
  • Refined logistics operations. This included the continued consolidation of distribution centres throughout the Group, including the establishment of the Asian distribution hub in Hong Kong in November 2008. In addition, a global carrier programme was launched to drive significant savings in transportation costs.
  • Initial implementation of global planning function. During the year, Burberry also began to invest in a global planning function to enable a tighter control and management of inventory. Leveraging data from the global IT solution, certain early efficiencies have been identified, including a significant reduction in style options, reduced purchases, improved replenishment processes and monthly flow disciplines.

Performance highlights for the year include:

  • Reduction in number of distribution facilities from 24 in 2007/08 to 14
  • Consolidation in freight carriers from 31 in 2007/08 to three
  • Global suppliers from 148 in 2006/07 to 100*
  • Shipment from air to sea (excluding road): minimal in 2007/08 to 68% in Autumn/Winter 2009

* Excludes Spain supply chain

KPI: Retail and wholesale gross margin measures, among other things, how efficiently Burberry sources its products.

Gross margin in retail and wholesale combined declined by 640 basis points in 2008/09. Further sourcing benefits were achieved, more than offset by a lower proportion of full price sales especially in the second half.

KPI: Adjusted retail and wholesale operating profit margin measures how Burberry's initiatives and its investment to improve its business processes, including sourcing, IT and logistics are impacting its profit margin.

Due to the challenging economic environment Burberry's adjusted retail and wholesale operating profit margin was 9.8% in 2008/09, with pressure on gross margin offset in part by tight management of discretionary expenses.