With Brand on Crossroads, Burberry’s CEO is big on China’s Young Money | Intelligence, BoF Professional
Paris, France – With revenues in the fashion industry declining after months of blocking the coronavirus and many consumers around the world reluctant to shop, now is an imperfect time to open a new store. However, in the sprawling technology center of Shenzhen, Burberry continues to launch a new boutique – the 63rd in mainland China – which the company calls the luxury industry’s first ‘social retail’ store.
The store, which opens on Friday, was developed in collaboration with a smartphone widget on the popular mega app WeChat. Announced as part of a partnership with Chinese technology giant Tencent, the initiative aims to integrate gaming, social media, e-commerce and white-gloved customer services that can be accessed both at home and in the store.
“The goal was to have an amalgamation of the social, digital and physical experiences,” CEO Marco Gobbetti told BoF. “We strive for true omnichannel.”
In Europe or the US, the number of consumers who can afford a $ 2,200 Burberry trench coat and are also interested in spending time on such a widget – growing a branded avatar to post on social media or collecting points that ‘unlock’ special menu items from the shop’s cafe – may not be great. In China, however, the extensive use of e-commerce tools has led to an explosion of customers through WeChat ‘mini programs’.
Gucci, Bulgari and Louis Vuitton are all present in the dense web of apps within an app that constantly propose new activities to WeChat’s more than a billion users. Luxury companies have also introduced more elements of video games and arcade culture into their Chinese stores, with traditional brands as apparently traditional as Dior or Lancôme test claw machines and ‘lucky gifts’ in stores. The initiatives reward customers for posting content online, lure them to stores, and can have the added benefit of shoppers ending up in a gambling-like mental haze.
Burberry combines those gaming and social media store elements with more practical offers, such as the ability to book fitting rooms and pre-book products – services that have exploded in popularity during the corona virus pandemic. “Covid has made what we’re trying to build even more relevant,” said Gobbetti.
Maintaining its digital edge in China is paramount to Burberry. While the fashion industry has been muddling through the deepest downturn since World War II, mainland China has become a bright spot for luxury brands: the country’s large spending has until recently spent most of its spending on foreign shopping trips. But with long-haul travel severely curtailed as a result of the coronavirus, luxury shops are now seeing unprecedented demand in the local market.
Burberry’s comparable retail sales fell 45 percent during the spring quarter, but soaring domestic demand due to travel restrictions and the removal of lockdowns drove mainland China sales up a whopping 30 percent in June. (Total sales to Chinese customers declined by a “mid-teens” rate in the month.) And while retail traffic is making a comeback, online sales are also playing a critical role in the wave.
We strive for truly omnichannel.
“China and digital are the only two bright spots in the luxury market, so initiatives that seek to harness synergies between them are a great opportunity,” said Mario Ortelli, a London-based luxury consultant.
“Millennials are sure to boost the Asian market in the medium term – but all brands want a slice of that pie,” said Jefferies analyst Flavio Cereda. “The Burberry store sounds new, but it is one store, and they have many other things to deal with.”
For Burberry, the blood-shedding impact of the pandemic is exacerbated by pressure to ultimately deliver results against an ambitious plan to further position the brand as a true player in the luxury sector. It is true that there is a gap in the market: there is currently no British response to European superpowers such as Gucci and Louis Vuitton. But moving the company from selling polo shirts from $ 200 at Macy’s to $ 2,000 handbags on Rue du Faubourg Saint-Honoré is a daunting task, and one with few precedents for success.
Gobbetti took over as CEO three years ago, and two years since hiring star designer Riccardo Tisci Away from LVMH’s Givenchy, the pair have managed to push the brand back into the fashion world, but have not yet revived revenue growth.
The company was ahead of the sharp drop in wholesale by phasing out cheaper sub-brands and drastically reducing exposure to U.S. department stores – and amid the current wave of bankruptcies in that space, it’s clear they’ve deftly dodged a bullet .
Gobbetti says the company turned around earlier this year, with consumers embracing Tisci’s revamped aesthetic more widely. Sales rose 11 percent for most of January, but the spread of the coronavirus soon put their “accelerate and grow” goal out of reach for this year.
Tisci’s mix of preppy and punk styles with tough face branding that you can read from a mile away is par excellence Instagram-friendly and has received strong response from a particular segment of smartphone-wielding fashion shoppers. But even before the pandemic hit, the new Burberry had yet to prove that its appeal was broad enough to run a company much larger than Givenchy, where Tisci and Gobbetti previously worked together.
Gobbetti says the brand is sticking to Tisci’s new look, indicating strong response from Asian customers since the coronavirus blockage declined, as well as some improvement in the US. “I really wouldn’t qualify it as a niche,” said Gobbetti. Millennial and Gen-Z customers will soon be responsible for 60 percent of luxury sales in the main Asian market, and Riccardo’s products have won a strong response from this cohort, he argued.
“This is a customer who is extremely fashion conscious and extremely liberated in the way they dress,” said Gobbetti. “They don’t have to observe any of the codes we have in Europe as a heritage of custom and religion. They really see fashion as a way to express their personality freely. ”
Thus the pressure in Shenzhen, where the population is over 12 million and the average age is under 30. As a technology hub with Tencent’s headquarters, the giant of software, data, digital entertainment and payments, as well as the mobile phone manufacturer Huawei Shenzhen has generated significant numbers of new affluent individuals and youth.
With already 62 stores in China – more than most rivals – Burberry is ahead of the market. But the brand heat lags behind larger players, who gain market share during the recession, as shoppers become more selective in their purchases. “The overweight shopping network in Asia is beneficial to Burberry. However, this is not enough to close the gap with brands with stronger brand momentum such as Dior, Louis Vuitton or ChanelOrtelli said.
One problem that could hold Burberry back is slow progress in curbing the habit of giving high discounts at the end of the season and through out-of-price outlets. Even before the pandemic, extensive reductions were widely applied to Tisci’s $ 390 T-shirts, $ 650 hoodies, and $ 2,050 bags, which could deter full-price sales and suggest that Burberry may be flying too close to the sun with attempts to move are more expensive.
“Burberry has a proven record of aggressive markdowns – this has not changed,” said Cereda, calling it their “number one issue.”
Gobbetti defended the brand’s prices, saying the streetwear items were among Burberry’s top performers, and sales of full-price handbags in the spring quarter grew by more than 30 percent in mainland China. “It is perfectly normal for some styles and sizes to go on sale at the end of the season,” he said.
About the new digital tools, Sucharita Kodali, a retail analyst at Forrester, said, “People do a lot of research before they go to a store, and a lot of discoveries have gone online.” If the approach works somewhere, it certainly is in China. But whether the brand will be able to scale up such initiatives and roll them out elsewhere remains to be seen.
“When you offer customers to prepare a dressing room for them, it’s hard to make it profitable,” said Kodali. ‘These kinds of initiatives are experiments. They will only gain credibility as stores of the future if they somehow generate money. ‘
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