Why Burberry won’t target marketing in £20m cost cutting drive despite slowing sales
While tests with Apple Music and Snapchat are yet to spark significant sales conversions, Burberry thinks they’re proving enough potential to show why marketing shouldn’t be targeted in a £20m cost cutting drive to maintain profitability amid slowing growth.
The fashion retailer today (15 October) posted a two per cent rise in revenue to £1.1bn for the first half of the year. This was predominantly driven by sales in Japan (up over 50 per cent) and Europe, which delivered double-digit percentage sales growth.
However, sales in China – where growth has slowed leading to a devaluing of the Yuan – have “moved from low single digit growth to mid-single digit decline” in the second quarter.
On a call with analysts, chief financial officer Carol Fairweather said that £20m in cost savings were required and marketing could have been the first port of call. Instead, spend has been reallocated for the all-important festive period, with non-traditional channels likely to command the greatest share.
“We are being much more coordinated in marketing,” she said, citing the effect its social and digital experiments with Apple and Snapchat have had on mobile sales.
For London Fashion Week Burberry showcased the whole spring/summer 2016 collection to fans on Snapchat a day early while a tie-up with Apple saw it become the first brand to be granted its own channel on the tech-giant's fledging music channel.
But, beyond boosting sales, innovation of this ilk has helped build awareness, particularly in China. So while it’s not seeing an immediate conversion it hopes that with continued investment it will bring people into the brand for the longer term.
Elsewhere it plans to continue to strengthen it e-commerce offering as well as the “end-to-end culture” which supports that, such as trained staff.
Click and collect orders now make up 20 per cent of sales, and so it's testing a new service for people to check online the inventory of their local store before coming into store.
“We know competitors are investing in e-commerce but they need to build a full end to end journey. For peers to catch up they need to invest in getting the culture right,” she said.
Despite the sentiment, shares in price fell by over 12 per cent in the first hour of the stock market opening.