Global luxury brand, Burberry, recently announced the company is expecting surprisingly low revenue at year’s end. According to a Bloomberg article, titled “Burberry’s Stagnating Sales Indicate End to Luxury Boom”, revenue in stores has significantly slowed over the past ten weeks, and Burberry’s market value has dropped by 1.27 billion pounds ($2.04 billion) accordingly.
While talking with analysts in the industry about consumer spending as a key economic indicator, Burberry’s dire problems arose. After Burberry made their recent startling announcement, their stock, as well as the stocks of other luxury brands such as Louis Vuitton, Prada and Gucci, quickly followed suit and dropped. “The issue about Burberry is an interesting one. While the company is British, it certainly has a global footprint and certainly caters to the higher end segment of the retail space. Yes – they did recently come out and warn that their revenues would be lower than expected – and I think they attributed this mainly to weakness in Europe,” said Allan Budelman, managing partner at Emerald Asset Advisors.
Nicholas Colas, a market strategist for the ConvergEx Group, believes problems in China may have contributed to Burberry’s downfall. “Burberry is a global brand, which means that Asian markets matter more than developed ones. This goes doubly true for China. There are several problems with this market. First, the economy there is slowing. Second – and specific to luxury products – the government is trying to crack down on obvious displays of wealth,” said Colas.
Leading Manhattan department store, Bloomingdale’s, which has a large Burberry department as well as departments for other luxury brands, admitted to having slower sales than usual in the men’s Burberry section. “Especially here, with ties and belts and such, yes, it has slowed down,” stated Michael Hughes, sales associate at Bloomingdale’s.
If consumers are not spending as much on Burberry, which is causing the fashion house to expect a weak annual profit, then what will happen to the workers in Burberry’s extensive production facilities in underdeveloped countries? Will they be negatively affected as well? Furthermore, what does this mean for the overall economy and could we be in for rough times ahead?