British luxury goods maker Burberry, which is famed for its beige trench coats and patterned scarves, reported a 2% rise in retail revenue to £1.1 billion ($US1.7 billion) for the first half of the year.
But it wasn’t taken as good news — sales in China are cratering.
Burberry is now desperately trying to use other types of marketing and advertising to bolster sales elsewhere, including using Snapchat and Apple Music.
The retailer initially seemed to deliver a glut of positive news in its trading update for the first half of the year — Japan saw comparable sales growth well in excess of 50% while Europe delivered double-digit percentage comparable sales growth.
But China sales are in a terrible state.
In the second quarter “demand from luxury consumers, particularly Chinese customers, was affected by a more challenging external environment.” You know it’s particularly bad because revenue in mainland China “slightly decreased” while sales everywhere else in the world either shot up or rose decently.
It’s so bad that Burberry said it “accelerated actions” to control costs, reallocate marketing spend and more actively use non-traditional ways of advertising to bolster up sales across the rest of the world.
“The external environment became more challenging during the half, affecting luxury consumer demand in some of our key markets. In response, we have intensified our focus on driving sales and productivity, while taking swift action on discretionary costs,” said Christopher Bailey, Chief Creative and Chief Executive Officer at Burberry in a statement.
“While mindful of this external volatility, our plans for the festive season position us well to return to a more positive sales trend in the all-important second half. Looking further ahead, we maintain our focus on – and confidence in – the long-term growth opportunities for our business across channels, regions and product categories.”
China’s terrible environment for luxury goods makers
Since China’s leader, Xi Jinping, came to power two years ago, the country has cracked down on “gifting”, the practice of offering very expensive gifts to company executives or people in power.While it is a long-standing tradition in Asia, the practice has fallen under great scrutiny due to the range of corruption cases thathave dogged government officials and company executives.
This has had a dramatic impact on a number of luxury goods makers, including Prada and Gucci.
In addition to this, the slowdown in China’s growth and the impact it has on consumer spending means a double whammy to luxury goods sales.
China’s central bank devaluing the Yuan also stung luxury importers with fresh foreign exchange costs.
The devaluation of a currency tends to give a boost to domestic producers at the expense of international imports — a yuan-denominated income is suddenly worth fewer dollars or euros, so items produced in the US or Europe are immediately more expensive.
Since Europe turned out a double-digit percentage comparable sales growth in the half, Burberry has reallocated its time and money in boosting awareness across some non-traditional channels.
The group said that Apple and Snapchat collaborations have really helped its digital presence and awareness around its runway shows.
This is hugely interesting because Burberry seems to be trying to tap into a much younger market for longer term sales growth.
It’s using Snapchat to image message followers and a younger audience. The average user of Snapchat, which is an app that allows people to send pictures to one and another on a time limit, is around 18.
On top of that, it also has a music channel on Apple Music, which signals a way into the much younger crowd.
But it’s hardly surprising the group has decided to focus it’s efforts away from China and more into the Western world — sales grew in the US and comparable sales growth in places like Italy, France and Spain jumped by over 20%.
It’s clearly time to get out of China.