It's China, not currency, that matters to Burberry

 

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The Independent Online

Outlook The colossal power of Burberry’s brand in China was brought home to me a few years ago when my aunt visited from Guangzhou and hauled me off to an East London factory to rifle through racks of check-lined trenchcoats.

Looking around, I noticed that most of the other shoppers were from the Far East, too. The strong pound hit the clothing giant’s latest operating profits in the year to March. But seasoned investors know that fluctuating currencies are a fact of life.

What matters is the underlying picture. And for Burberry, it’s the China story that will be critical to its future. In 2014 Asia Pacific – predominantly China and Hong Kong – accounted for almost 40 per cent of total revenues. Will slower GDP growth in China hurt luxury Western consumer brands, such as Burberry, that have supercharged their expansion on the back of the Far Eastern consumer? It’s hard to say.

The Swiss watch industry was hammered in 2013 after Beijing cracked down on corruption, but exports have since bounced back. We might soon discover how sustainable Asian demand for Burberry is – and whether Christopher Bailey is really worth that sizeable remuneration package.

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