Burberry’s COVID-19 Efforts
Burberry has been proactive in its strategy to fight against Covid-19 by supporting relief efforts during the pandemic. Burberry CEO, Marco Gobbetti, along with the entire board of directors, took a voluntary 20 percent reduction in their base salaries between April and June 2020. The money from this pay cut was donated to the Burberry Foundation Covid-19 Fund. The fund supports struggling communities by supplying personal protective equipment (PPE) and reducing food poverty.
Manufacturing PPE
Burberry converted its factory in Castleford to manufacture PPE for medical and care workers. The brand also sourced surgical masks via its supply chain and funded emergency vaccine research at the University of Oxford. By the end of May, Burberry had donated more than 150,000 pieces of PPE to the UK National Health Service and healthcare charities. Gobbetti believes that the brand has furthered Thomas Burberry’s legacy of protecting others and caring for the community.
Revenue and Profits Fall
Burberry has approximately 10,000 employees on the payroll but opted not to take advantage of the UK government’s furlough scheme. Instead, staff were paid in full by the brand. This decision helped strengthen brand equity but will have hurt Burberry’s annual profits. Burberry’s published accounts show that profits before taxation have plunged from £441 million to £169 million for the year to 28 March 2020. This fall of 62% does not match the decline in revenue which has only decreased by 3% to £2,633 million. Burberry’s decrease in both turnover and profits cannot be blamed on the spread of the Covid-19 as businesses only began to feel the full force of the virus in March 2020.
Excess Stock
Like other luxury brands, in the past Burberry has incinerated excess stock worth millions of pounds. In September 2018, the brand made a commitment to stop burning products. It was revealed that the brand had destroyed an estimated £100 million worth of stock the previous year but had received significant negative PR which led to it reversing its strategy. Burberry remains the only luxury brand to make this commitment.
The enforcement of global travel restrictions, store closures and evidence that Chinese consumers are not yet purchasing at pre-crisis levels means that Burberry has a substantial excess inventory.
As of 28 March 2020, Burberry’s accounts show a cost value of stock of £620 million. This cost value includes a £170 million provision, or 27% of the total, for surplus or obsolete stock that would normally be earmarked for destruction. To combat the abundance of stock, Burberry has relied heavily on discounting many of its products in China.
Disposing of Excess Stock
Discounting always has a detrimental effect on luxury brand equity. Some say that consistency in pricing enhances product value and reinforces the relationship with customers. Burberry’s supposed competitors such as Chanel, Hermes and Louis Vuitton do not reduce the retail price of merchandise nor do they sell at outlets like Bicester Village. Prada ended in-store markdowns in 2019 but still sells at Bicester Village as does Burberry. Therefore, it is suspected that these luxury companies often resort to burning excess stock to protect brand reputation and appeal.
Redirecting Inventory
Burberry has stated that the excess inventory from the pandemic has been redirected to those areas with improved sales performance, specifically China and South Korea, by sending stock directly from suppliers to its Hong Kong distribution centre. Also, the brand has made use of outlets and employee sample sales.
What about the Competition?
While Burberry has relied on discounting products during the pandemic, other luxury fashion brands have taken a different approach. Chanel announced they would be increasing prices between 5 to 17 percent on selected bags, including its classic 11.2 and 2.55 handbags. The impending hike caused panic in South Korea and China, as eager shoppers formed queues outside stores to purchase the bags at the original price. Increasing prices will help the luxury retailer to pad margins, soften the impact of lower sales volumes and take advantage of the rebound of consumerism in China.
Closing Words
Despite positive brand equity following Burberry’s relief efforts made during the Covid-19 pandemic, discounting may have countered this edge by reducing the brand’s exclusivity. Is the brand perhaps backtracking on its forward-thinking business strategy of becoming a real luxury brand?
Post written by Holly Marshall
