Burberry Needs a Touch of Markle Sparkle
(Bloomberg) -- The sight of Meghan Markle's mother carrying what looked like a Burberry outfit was enough to ignite speculation she'll wear the brand to her daughter's wedding on Saturday. The British luxury group could certainly do with some Markle sparkle.
Organic sales increased by an anemic 2 percent in the three months through March, trailing growth at rivals like LVMH Moet Hennessy Louis Vuitton SE and Kering SA.
In November, CEO Marco Gobbetti set out to take the brand more upmarket, expand in areas such as leather goods and streetwear, and to cull stores that don't fit with its new positioning.
There's a lot going on behind the scenes. Gobbetti has refreshed much of the management team, including appointing Riccardo Tisci as creative director. He's tackling distribution, closing a net 20 stores last year. He's also showing he is serious about leather goods, acquiring an Italian maker of its bags and accessories.
There are signs this approach is striking a chord with consumers, with his new clothing styles and a belt bag all being well received. Meanwhile, demand is improving from both Chinese and U.S. consumers.
But the finished garment won't be visible until Tisci unveils his first collection in September. As with Alessandro Michele's transformation of Gucci, it may be a year from now before the full suite of products reaches stores.
Even when they do, there are some potential pitfalls. Burberry will have to manage the transition from the current range to Tisci's collection. Gucci was careful not to sacrifice strong sellers, even as it embraced a new aesthetic. Tisci's products will have to sell. He did well at Givenchy, but the jury is still out on whether he is the right fit with the British brand.
Burberry still expects revenue and its operating margin to remain stable in 2019 and 2020 as it overhauls stores and pulls products from less luxe locations.
Yet the shares are up 23 percent since February, and have even weathered billionaire Albert Frere's decision to sell his 6.6 percent stake in the group. The stock now trades at more than 22 times forward earnings, well above its average for the past five year, according to data compiled by Bloomberg.
That's a sign of how desperate investors for the next Gucci-like transformation, and they may be taking for granted that Gobetti and Tisci's turnaround will resonate with luxury's big spenders.
If it doesn't, shareholders will at least be able to console themselves with the possibility that Burberry's 892 million pounds ($1.2 billion) of net cash and still relevant, if somewhat tired, brand could yet attract the eye of another activist or even a predator.
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