Asians still aren't buying luxury goods, and that's a big problem for Burberry

Burberry, the British luxury retail brand, released a trading update on Thursday, and it shows that life in the luxury business is still a real struggle.

On the surface, things don’t actually look like they were too bad in the three months up to December 31st.

  • Underlying retail revenues grew by 1%.
  • Growth in Europe was up in the “mid-single digits” thanks to strong sales in Italy, Germany, and Spain.
  • Revenues grew marginally in the Americas, and improved from Q2.
  • Total wholesale revenue in the six months to 31 March are expected to be flat at around £331m.

While those numbers aren’t exactly setting the world on fire, they’re not awful, but there’s one big problem for Burberry right now. People in the Far East still aren’t buying Burberry goods, and its absolutely killing the company’s growth prospects.

Burberry didn’t disclose the exact numbers, but said that sales in the Asia Pacific region saw a “mid single-digit percentage decline” over the quarter, mirroring the big problems the company experienced a similar decline in the region.

In November’s trading update Burberry put much of the blame on falling Asian sales on the Chinese mainland, where it said were falling. In Thursday’s update however, it’s the offshore hubs of Macau and Hong Kong that are causing real problems. Sales on the mainland actually grew in the three months to the end of December.

Sales in Hong Kong absolutely plunged, falling by more than 20%, blamed on a “decline in footfall” in the financial centre. Macau was a similar story, although the company didn’t reveal exactly how bad losses in the gambling hub were. Earlier this week, Business Insider’s Ben Moshinsky reported that the small peninsula, home to huge numbers of casinos, is in the middle of a massive downturn, and that the wealthiest gamblers have abandoned the resort.

This downturn looks to be having a big knock on effect on Burberry’s business, with the company calling their problems “significant headwinds”.

Speaking about Thursday’s results, Burberry CEO Christopher Bailey said (emphasis ours):

In a tougher environment than expected, our sustained focus on growth and cost control drove a number of positive results over the quarter, including the outperformance of digital and a return to growth in mainland China. While Burberry was impacted by the ongoing challenges facing the luxury sector, headwinds in Hong Kong and Macau masked an otherwise stronger performance in many markets.

The outlook for our sector remains uncertain as the consumer and environment evolve. However, we are anticipating and responding to these changes through an intense focus on new growth opportunities and the acceleration of our productivity and efficiency agenda.”

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