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Gao Jianghong and Zhang Yizhen, interns at 21st Century Business Herald, report from Beijing

On July 15, British luxury brand Burberry announced the appointment of new CEO Joshua Schulman to replace Jonathan Akeroyd, who has resigned and left the company after only two years in office. The appointment is effective immediately.

This is the third time Burberry has changed its leadership in five years. In the past two years, under the leadership of former CEO Akeroyd and creative director Daniel Lee, Burberry has been trying to move upmarket, but has struggled in the slowing and polarized luxury market. In the first quarter ending June 29, the brand's revenue fell 22% to 458 million pounds, or about 590 million U.S. dollars, prompting Chairman Gerry Murphy to introduce new leadership again.

At the same time as the appointment was announced, Burberry also announced the suspension of dividends. Its share price fell 16.08% to 7.44 pounds per share on the same day. Its current market value is 2.668 billion pounds, a new low. In the past year, its market value has shrunk by nearly 60%, and its performance is lagging behind its peers.

Can this change of leadership bring a glimmer of hope to this century-old brand?

Breaking the bottom line

In the past decade, the luxury industry has reached the threshold of surging demand several times, including the sharp increase in fashion demand from Chinese millennials from 2016 to 2019, and the magical sales growth curve in the United States and Europe after 2020. Under the leadership of Marco Gobbetti and Akeroyd, the former two CEOs of Burberry, the brand has also made progress in improving its strategy, reducing investment in underperforming shopping malls and wholesalers, and attracting customers to turn to the retail network, but revenue has basically stagnated.

Looking back at Burberry's financial data during its transformation period in recent years, its revenue was 2.72 billion pounds, 2.633 billion pounds, 2.344 billion pounds, 2.83 billion pounds and 3.094 billion pounds in fiscal years 2019, 2020, 2021, 2022 and 2023, respectively. There was almost no growth in fiscal year 2019, profits were halved in fiscal year 2020, revenue and profits continued to decline in fiscal year 2021, and revenue in fiscal year 2022 only increased by about 4% compared with fiscal year 2019.

Compared with its peers, this result is obviously unsatisfactory. During the same period, LVMH Group's revenue increased by 10%, 15%, -17%, 44% and 23% year-on-year respectively, while Kering Group, whose performance is also declining, increased by 26%, 16%, -17.6%, 34.7% and 9% respectively, and Prada Group recorded 6%, 3%, -24%, 41% and 25%. In comparison, even in 2021 and 2022, when luxury goods experienced magical growth during the epidemic, Burberry failed to seize the opportunity to enter a higher level of the industry track.

Zhou Ting, director of Yaoke Research Institute, believes that the popularization of the brand is the main reason for Burberry's stagnant performance in recent years. During the epidemic, the higher-end brands sold better. Although its classic models still have market recognition, it is also obvious that consumer demand is diversified and personalized. Lack of innovation will only lead to being abandoned by many consumers. The limited increase in consumption upgrades of new consumers, especially mass consumers, has led to a cycle of Burberry's performance.

Professor Guo Jianguang of Xi'an Jiaotong-Liverpool University pointed out that Burberry is too dependent on Asia, especially the Chinese market, and the problem of counterfeit goods has always existed, and its current investment value has been seriously depreciated.

According to Burberry's recent financial report, its revenue in fiscal year 2024 is 2.968 billion pounds, a year-on-year decline of 4%. Burberry's sharp decline from stagnation to a sharp decline has only occurred in the last two quarters - comparable retail sales in the latest quarterly report fell 22% year-on-year, and had already fallen 12% at the beginning of this year. From a regional perspective, revenue in the Asian market, including China, fell 1% to 1.286 billion pounds, the EMEIA market grew 1% to 1.017 billion pounds, and the Americas market fell 19% to 603 million pounds, with sharp performance alarms.

Gerry Murphy, chairman of the Burberry Group, pointed out that the weak trend that the brand emphasized when entering the 2025 fiscal year has deepened, and if the current trend continues into the second quarter, an operating loss is expected in the first half of the year. He said that in view of the current trading situation, Burberry decided to suspend dividends. It is also worth noting that affected by the sharp drop in Burberry's US stock market, Prada fell in Hong Kong stocks today, and once fell more than 5% to HK$51 per share during the session, hitting a new low since February.

In addition, there have been media reports that due to the sharp drop in share prices and market value in the past year, Burberry is about to lay off hundreds of employees, mainly in the UK, in order to cut costs. The layoffs may affect more than 400 jobs. According to the group's latest annual report, the group has a total of about 9,169 full-time employees in the 2023-2024 fiscal year.

Becoming the next Coach?

Looking back on the transformation over the past two years, Burberry is like a sports car with a gorgeous saddle, lost at the intersection of high-end and popular.

In 2021, former CEO Jonathan Akeroyd joined Burberry after his huge success at Alexander McQueen and Versace. He is good at combining luxury brand positioning with clever marketing across categories and price points, and was once considered the executive who best fits Burberry's positioning. However, when Akeroyd was formulating strategies for Burberry, it happened to hit the luxury recession. While consumer purchasing power decreased, the brand suddenly transitioned from the street style of former designer Riccardo Tisci to the first series of current creative director Daniel Lee, declaring a return to the retro British spirit to a group of cultivated street fashion youth, leaving the audience and the market confused.

Burberry's new bags such as "Shield" and "Knight" are priced at nearly $3,000, and thick high-heeled loafers and hiking boots that look like Timberland's rhubarb boots are priced at more than $1,000. These are beyond the imagination of major consumers of this brand, so much so that the products were sold at half price at SAKS Fifth Avenue department store as soon as they were launched.

Referring to Burberry's current predicament and way out, Bernstein analyst Luca Solca believes that it will be difficult for Burberry to implement its brand transformation strategy as planned amid slowing demand for luxury goods. He wrote in one of his columns: "Instead of sticking to an ineffective strategy, is becoming the 'British Coach' the antidote Burberry is looking for?" Some analysts even bluntly stated that Burberry's current pricing is too high for its target customers.

This direction of effort may be exactly what Burberry intends to bring in Schulman as a rescuer. Although quarterly sales did not meet expectations, Burberry's stock price rose slightly by 2% after the announcement of the new CEO. Many analysts agree with the change of leadership when the brand's performance is not good.

Joshua Schulman, 52, served as president of Coach, Tapestry's flagship brand, from 2017 to 2020. During his tenure, he reduced over-reliance on department store discounts and homogenized goods, and supported the more expressive American style of creative director Stuart Vevers, striving to maintain price and accessibility while enhancing the brand image. In 2021, Schulman took over as CEO of Michael Kors and was arranged to replace John Idol as the leader of parent company Capri, but left after Idol decided to continue in the position.

Morningstar analyst Jelena Sokolova pointed out that Burberry's problems include sharp price increases amid a weak industry backdrop and weak brand momentum, and the newly appointed Joshua Schulman, who once worked for a light luxury brand, may make Burberry a more affordable brand, which is what the public wants to see.

Thomas Chauvet, an analyst at Citi, said that it is difficult for large companies to change their strategies easily. Changing the head of a company can only affect the implementation of the strategy. In the increasingly competitive luxury market, brand reshaping has become more complicated. The scale of the enterprise, top design talents and marketing investment are all important. Some investors also believe that Schulman will prepare for the sale of Burberry, and Coach's parent company Temperance is a suitable buyer.