Fashion world in shock as British clothing giant Burberry issues profit warning amid difficult conditions for 'middle market' brands


It’s the hottest ticket
at London Fashion Week, and a brand that has recovered from its “chavvy”
connotations to become a global powerhouse in the world of luxury style.

So the fashion world – and the stock market – was understandably shocked when British clothing giant Burberry issued a profit warning today.

Like-for-like sales ground to a halt in the 10 weeks to September 8, meaning its pre-tax profits for the year will come at the lower end of expectations. Analysts had predicted a total of between £407m and £455m. Following the announcement, shares slumped by almost 19 per cent, wiping £1 billion from its market value in what one analyst described as “shooting the messenger” over a crisis across luxury brands.

Burberry CEO Angela Ahrendts said the company’s second quarter growth had slowed against “historically high comparatives” in a “challenging market”. “Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short term profitability, while continuing to execute on our proven five key strategies,” she added.

In the short term, the company’s headcount has been frozen, travel expenditure will be cut and new IT projects have been deferred. The long-term strategies, including expansion into emerging markets and a diversification into non-clothing products, are still in place.

As luxury giants LVMH (behind Louis Vuitton) and PPR (Gucci, Alexander McQueen) took single digit hits, analysts pondered whether there could be a problem with growth across high-end manufacturers. Ahrendts didn’t specify whether results were hit in Western markets or emerging markets – leading to speculation it could conceivably be both.

The announcement was in stark contrast an optimistic forecast at the opposite end of the retail sector. Primark said like-for-like sales had increased by 3 per cent in the year to 15 September, with 19 new branch launches increasing overall sales by 15 per cent.

Neil Saunders, managing director of retail analysts Conlumino, said the current economic climate protected super-cheap brands such as Primark, as well as those who sell to the “uber wealthy”, but Burberry is a different beast. “In Western markets, a lot of Burberry’s success is predicated on the fact they sell to a wide market. It may be a luxury brand, but middle market consumers will stretch their budget upwards to purchase Burberry items,” he said. Brand that sell to the middle market, such as Marks & Spencer, have had a difficult year.

Growth in China has slowed, Mr Saunders said, because: “Luxury businesses have piled into those markets so now it’s much more competitive.” In an environment where companies can no longer rely on Asian and Latin American markets for strong growth, he said Burberry needs to keenly address the customer’s need. “Luxury brands aren’t renowned for being customer centric. They don’t listen to what the customers want and instead they set the trends and tell them what to buy. Moving forward, they need to take a good look at which products are gaining traction in which markets.”

Jaana Jatyri, CEO of, said Burberry had fallen foul of the fickle fashion world: “In this economic climate, people are watching what they spend no matter how affluent they are. The margin of error is so small that everything has to be perfect. Customers today aren’t loyal to one particular brand.”

Kate Calvert, an analyst at Seymour Pierce, was more positive. “There is a global slowdown for luxury brands, but the underlying signs for the market are still very good,” she said. “There’s still wealth creation in emerging markets.”

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own