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Burberry Says Digital Key to Near-Term Growth

Burberry Group plc said the coronavirus and some temporary store closures drove a sales dip in the third quarter.

The decline in retail sales for the quarter ended Dec. 26 was 4.3 percent to 688 million pounds ($939.2 million) from 719 million pounds ($981.6 million) in the year-ago quarter. Comparable store sales fell 9 percent in the period. Sales in Asia Pacific were up 11 percent, with strong growth in Mainland China and Korea. But sales in Europe, Middle East, India and Africa were down 37 percent due to fewer tourists and coronavirus closures. The Americas were down 8 percent as a mid-teen increase in full-price sales were offset by planned reductions in markdown activities.

Burberry said about 15 percent of its store base, or up to 62 stores, were closed at the height of the third quarter lockdowns. Despite temporary store closures and reduced operating hours, the company said it achieved a high single-digit full-price sales increase in the quarter. “Full-price sales were particularly strong in rebounding markets—Americas, Mainland China and Korea—where our efforts translated to double-digit growth. To further strengthen our brand, we implemented the reduction in markdown periods and products as planned,” the company said.

Burburry’s Festive campaign in November and Lunar New Year capsule in Mainland China at the end of December attracted new customers to the brand, leading to double-digit growth within full-price sales, it added.

While the pandemic continues to disrupt consumer spending, Burberry said digital will remain instrumental in driving growth, pointing to “digital innovations” such as popups and local activations that supported more than half of its e-commerce growth. “In addition, we continued to use our digital capabilities to link customers to our stores in periods of limited traffic or lockdowns, including through our new live chat functionality on .com, virtual appointments and virtual client events,” it added.

Burberry become the first luxury company to partner with the Business Disability Forum, and continued supporting Covid-19 relief efforts. Preliminary analysis of the EU-UK Trade and Cooperation agreement would likely result in a “modest increase in border trade compliance costs as well as some incremental duty under the rule of origin,” it said.

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“We saw a strong increase in full-price sales as our collections and communication resonated well with new, younger clientele as well as existing customers. Our localized plans and digital capabilities helped drive growth in rebounding markets and we implemented our planned reduction in markdown. While the short-term outlook remains uncertain due to Covid-19, we are well placed to accelerate when the pandemic eases,” said Marco Gobbetti, Burberry CEO.

The British luxury firm said it remains “encouraged” by its strong underlying outperformance of full-price sales in the third quarter and that it expects continued progress on its strategic objectives in the fourth quarter, despite ongoing Covid-19 disruptions. “Gross margins will benefit from full price, regional and channel mix changes as well as lower stock provisions. Inventory and cost management plans remain on track,” it said.

At the moment, 15 percent of stores are closed and 36 percent are operating with reduced hours or restrictions. Noting the uncertain trajectory given the spread of the more transmissible new variants of Covid-19, Burberry said it expects possible regional disruptions for the rest of the fiscal year. It also noted that cost savings are currently “running in line with plan and we are on track to see inventory below last year’s levels.”

At the end of the quarter, Burberry operated 215 retail stores, 148 concessions, 57 outlets and 44 franchise stores, excluding popups.