Strategy and Mission

Leveraging the franchise
Intensifying 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 both in the front and back-of-house operations.

Key highlights in 2009/10 include:

Accelerating brand momentum. Continued investment in the Burberry brand is fundamental to its long-term success. Strategies to enhance and elevate the brand span all consumer-facing platforms, both physical and virtual. 2009/10 included the return of the Burberry womenswear show to London Fashion Week to mark its 25th year anniversary, an event that garnered extensive editorial coverage and served as a geographical reconnection of the brand with its British heritage. In stores, the Group continued to roll out the Burberry Experience, a comprehensive sales and service programme. During the year, the brand was featured on the covers of 270 leading publications and once again included on Interbrand's list of the Top 100 Global Brands 2009.
Refining product segmentation. With the relabelling of the casual component of the women's and men's apparel lines as Burberry Brit, management brought greater clarity to the brand's segmentation. This separation from the more sartorial Burberry London line allows the businesses to offer more complete assortments in each segment and to target customers and distribution more effectively.
Capitalising on operational improvements. Investment in operational improvements has allowed greater speed and responsiveness in delivering products to consumers, pointing the way to a further evolution of the Burberry business model that will provide fresh merchandise to stores and online with greater frequency. April Showers is one example of this in practice. In mid-January 2010, following a strong holiday season, the merchant and design teams developed a capsule collection to supplement the main Spring 2010 offering, which was then delivered to stores at the end of April.
Licence amendment. In October 2009, the Group announced an amendment to its apparel licence in Japan which better positions Burberry to optimise its presence in Japan and the high-growth Asian region over the medium term.
Spanish restructuring. 2009/10 also saw the restructuring of the Group's business in Spain. Deteriorating performance during the previous two years in combination with the poor state of Spain's economy had resulted in a local operation that was no longer viable. While difficult, the closing of that operation in favour of integrating the market with global Burberry is in the long-term best interests of the brand.

Leading digital

Through the integrated efforts of its Marketing, Creative Media and IT teams, Burberry has built sector leading expertise in the digital media arena.

Live streaming. The live streaming of the Spring 2010 show invited consumers globally to share the full experience of a Burberry fashion show for the first time. The brand broke new ground by live streaming in 3D the Autumn 2010 show to five locations around the world. The webcast also allowed consumers to purchase runway items for expedited delivery – another first for the luxury sector.
Social media. The brand has established a leading presence across social media platforms, creating new communities of interest. Burberry is the leading luxury brand on Facebook with over one million fans. During the year, the Group also launched artofthetrench.com, a social media website which introduces the iconic trench coat to the digital generation and is attracting the new, younger luxury customer to the brand.

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

In 2009/10, in challenging and volatile markets, Burberry's revenue was £1,280m – a 1% underlying increase on the previous year. Revenue in the first half declined by 5% underlying, but grew by 6% in the second half, driven by Burberry's retail stores.

Core Values

The core purpose of the Burberry brand is to protect, explore and inspire. These three values are at the heart of Burberry, its culture and behaviour as a company. The work of the Burberry Foundation and further progress in corporate responsibility demonstrates these values in practice.

Burberry Foundation. Dedicated to helping young people realise their dreams and potential through the power of their creativity, the Burberry Foundation provides a strategic platform for the Group's engagement in community initiatives and facilitates charitable giving in regions where the majority of employees live and work. In 2009/10, partially funded by the sale of iconic rainwear and scarves, Burberry donated approximately £1m to the Foundation, supporting 14 innovative charities in eight cities around the world.
Corporate responsibility. The Group continued its efforts to improve corporate responsibility performance and to inspire employees with respect to issues of ethical trading, environmental responsibility and community investment. 2009/10 initiatives included a 30% increase in factory visits by Burberry representatives and a reduction in CO₂ emissions per unit of turnover from Group facilities.

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 continues to be a key driver of growth for the Group. For the third consecutive year, it was the fastest-growing product area within Burberry, and continues to offer scope for further gains across a number of under-penetrated categories.

Large leather goods. The core of Burberry's nonapparel offering, large leather goods drove non-apparel growth in the year. In line with the continued consumer shift towards a more classic aesthetic, new reinterpretations of Burberry's heritage icons were a key factor in handbags.
Menswear. The Group continues to see opportunity in the further expansion of men's non-apparel. Accessory assortments were broadened and upgraded during the year, with small leather goods and belts performing well at retail.
Soft accessories. With an intensified and extended assortment, soft accessories led non-apparel growth. The Burberry snood was the hit of the Autumn/Winter season, garnering favourable editorial comment around the world.
Shoes. Shoes continue to present significant expansion opportunities. Investment continued in the year with added design and product development.
Japan non-apparel joint venture. Established to build the brand's non-apparel business in Japan, the world's largest accessories market, the joint venture became fully operational during the year. The team refurbished Tokyo's Omotesando store and opened nine concessions in prestige department stores.

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

In 2009/10, non-apparel revenue increased by 10% underlying, compared to 1% for Burberry as a whole. Non-apparel accounted for 36% of retail and wholesale revenue, compared to 33% last year. Handbags, which are core to non-apparel, contributed about half of sales.

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 structure.

2009/10 saw progress in several areas:

New store openings. While new store development was planned conservatively, reflecting wider market conditions, the Group added 21 mainline stores during the year, including Burberry's first flagship store in Asia at Singapore's Ion Orchard. The Group also added locations in existing markets, including Paris and New York to intensify Burberry's presence in these high potential metropolitan areas.
Upgrading existing stores. 28 stores and concessions were renovated over the period, in line with efforts to ensure greater consistency of brand expression and customer experience.
Enhancing service. Burberry is committed to achieving industry-leading standards of customer service in its stores. The roll-out of the Burberry Experience sales and service programme in the US and Europe was completed during the year, and is well advanced in Asia. In addition, to further improve service to top customers, the Group launched a pilot initiative aimed at better meeting the specific requirements of these clients.
Digital integration and e-commerce development. The Group is committed to creating a seamless link between the physical and digital presence of the Burberry brand, responding to the direction of retailing as an increasingly multichannel proposition. In e-commerce, Burberry achieved 60% growth in the year, and plans continued investment in this channel. The brand is also bringing this commitment to digital technology in-store. E-commerce enabled tablets were added to mainline stores during 2009/10.
Global buy. Execution of the global buy, a common product assortment across Burberry stores, contributed to enhanced sourcing efficiencies, more consistent in-store presentation and improved sellthrough rates.

KPI: Growth in retail revenue includes comparable store sales growth (measuring growth in productivity of existing stores), plus sales from new space.

In 2009/10, comparable store sales growth increased by 7% (H1: 2%; H2: 10%), driven by product innovation, digital marketing and improved customer service. The balance of revenue growth was driven by new space, which increased 9% on average during the year.

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

The number of stores directly operated by Burberry increased by 21 in 2009/10, including a net 12 mainline stores and a net nine concessions around the world.

INVESTING IN UNDER-PENETRATED MARKETS

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

Americas. The Group continues to see strong growth potential in the Americas across both wholesale and retail channels. As part of strengthening its wholesale operations, Burberry opened a new regional headquarters with state-of-the-art showrooms. In retail, management opened six stores, including the first standalone test stores for the Burberry Brit and London lines. The Group also intensified efforts in Latin America with a dedicated on the ground management team, and the April 2010 opening of Burberry's first directly operated store in the region in Brasilia.
China. At year end, Burberry operated 50 stores in the mainland China market through a franchise partner. A net 13 new stores were added in the year – including the first standalone children's store in this market.
Other emerging markets. A new joint venture in India was announced in November 2009, combining the strengths of the Burberry brand and organisation with the expertise of a local partner to address this young, exciting luxury market. In conjunction with local partners, the Group also opened the first Burberry stores in Bahrain and Lebanon in the year.

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

Burberry added a net 20 stores in Emerging Markets, of which 13 stores were in China and six were in the Middle East. Of the total, 97 are operated under franchise, 12 by the Burberry Middle East joint venture, and two by the Burberry India joint venture. In North America, which Burberry has also identified as an underpenetrated market, underlying retail and wholesale revenue increased by 2% in 2009/10, with an improved performance in the second half (up 10%).

PURSUING OPERATIONAL EXCELLENCE

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

Efforts to drive operational excellence have driven significant improvements across central functions, the supply chain and IT:

Fully executed global cost efficiency programme. Management successfully executed the £50m cost efficiency programme announced in 2008/09. Approximately half of the gains were driven by supply chain and corporate process efficiencies. Cost reductions, including rationalisation of internal manufacturing, showroom closures and intensive expense and headcount management, accounted for the remainder.
Further progress in planning. Building on the investment made in 2008/09, Burberry continued to develop a more sophisticated global planning and inventory management function. Through enhanced sales forecasting and monitoring, combined with more disciplined procurement, inventory levels were reduced 36% year over year
Flexing the supply chain. In response to the quickening pace of customer demand in the year's second half, management accelerated product deliveries and added an unplanned capsule collection for April selling. These actions were enabled by investment in the supply chain during the previous two years.
Finalising global infrastructure implementation. The Group moved toward completing SAP implementation in the year. The new system was deployed in the US operations in April 2009 and in most of Asia in May 2010. The Europe distribution hub was also converted in April 2010. Presently, approximately 90% of Burberry's stores are converted.

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

Gross margin in retail and wholesale increased by 760 basis points in 2009/10. This was achieved by a combination of an increase in the proportion of full price sales and supply chain improvements.

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.

Burberry's adjusted retail and wholesale operating profit margin increased from 9.8% to 11.6%, largely due to gross margin benefits and savings from the global cost efficiency programme.