Joshua Schulman, the new CEO of Burberry, faces a daunting task in reviving this traditional British luxury brand. In recent years, Burberry’s sales have significantly declined, and its stock price has dropped by around 40% since the beginning of this year. Consequently, there is widespread speculation in the market that Burberry might become a target for acquisition.
Rumors of Moncler Acquisition and Burberry’s Stock Surge
Reports of an acquisition by Italy’s Moncler, famous for its puffer jackets, caused Burberry’s stock to surge by as much as 8% on Monday. While Moncler has stated it would not comment on “unsubstantiated rumors,” various media outlets report increasing industry chatter that Moncler is considering the acquisition to create a new giant in outdoor luxury apparel.
However, there is caution regarding the likelihood of such a deal. Italian brokerage firm Intermonte points out that revitalizing a large company like Burberry carries substantial risks, suggesting the possibility of a deal remains low. Additionally, Moncler has been managing its acquisition of Stone Island since 2020, which has somewhat fallen short of market expectations. Analysts at UBS also express surprise at the timing of a potential new acquisition by Moncler.
The Challenge of Outlet Stores and Pricing Strategy
A pressing issue for Burberry is the need to reassess its outlet store network and pricing strategy. Currently, Burberry operates around 56 outlet stores in major markets, including China, Japan, the U.K., and the U.S., where it offers previous collections and excess stock at steep discounts. Analysts argue that the abundance of these outlets undermines Burberry’s strategy of positioning itself as a high-end luxury brand.
Since Burberry’s staple items, such as trench coats, undergo minimal design changes each year, the availability of previous collections at half the original price diminishes customers’ motivation to pay full price for new products. This situation can negatively impact the brand’s premium appeal, potentially hindering Burberry’s efforts to move upmarket.
Yet, reducing outlet stores carries its own risks. According to HSBC estimates, outlet sales account for approximately 30% of Burberry’s total revenue and 50% of its profitability. Cutting back on outlets could significantly impact sales, and given the brand’s established customer base, a complete phase-out of outlets may prove challenging. Balancing the need to protect Burberry’s brand value while minimizing the impact of outlets on its luxury positioning remains a key challenge for the company.
Creative Direction and Brand Identity Confusion
On the creative front, Burberry has experienced several leadership changes in recent years, which some view as contributing to brand identity confusion. Current creative director Daniel Lee, who previously found success at Bottega Veneta, has yet to achieve the same level of acclaim for his designs at Burberry. Although there are rumors about Lee’s future with the brand, Chairman Gerry Murphy has stated that no change in creative leadership is anticipated.
Interest from LVMH’s Bernard Arnault
There are also reports that Bernard Arnault of LVMH has shown interest in a potential deal between Burberry and Moncler. With Arnault’s background as an investor in Moncler, industry sources suggest he may be keen to see this transaction come to fruition.
Whether Schulman can successfully rebuild Burberry’s brand value and restore its position in the luxury industry remains a question. The outcome of his strategy will be closely watched as Burberry strives to reclaim its place in the spotlight.