Asia slowdown hits Burberry sales
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A decline in the number of shoppers from mainland China travelling to Hong Kong to buy luxury goods has continued to be a drag on Burberry, the British retailer best known for its trenchcoats and cashmere scarves.
Burberry said on Wednesday that comparable sales in Hong Kong were hit by a “double digit decline” in the three months to June 30, its first quarter, as fewer Chinese mainlanders headed to the city because of political tensions or hostility from locals.
The British group, like many other retailers, suffered during last year’s lengthy pro-democracy protests in Hong Kong but has seen no pick-up in trading as mainland Chinese take advantage of changing exchange rates to travel to other destinations such as Japan and South Korea for shopping trips.
Burberry said sales at its stores in mainland China still rose by a “low single-digit percentage” during the first quarter, but the problems in Hong Kong pushed down sales in the Asia-Pacific region overall by a “low single-digit”. In Japan, the retailer reported “exceptional growth” during the quarter, although from a low base.
Carol Fairweather, Burberry’s chief financial officer, said the group was trying to target local Hong Kong residents through marketing events in an attempt to stabilise sales in the city. But she insisted all stores in Hong Kong remain profitable.
Chinese shoppers — who account for 30 to 40 per cent of Burberry’s revenues globally — are still spending during trips to other parts of the world, Ms Fairweather said, despite concerns over weakening consumer sentiment in the world’s second-biggest economy following a period of dramatic stock market upheaval.
“We still saw growth from the Chinese consumer in China and globally,” Ms Fairweather said.
“We still saw growth from the Chinese consumer in China and globally,”
The problems in Hong Kong weighed down overall sales growth at Burberry during the quarter. Excluding the effects of currency movements, underlying retail revenue rose 8 per cent to £407m. This was in line with analysts’ forecasts but was lower than the 14 per cent growth recorded during Burberry’s last financial year. Comparable sales for the group as a whole rose 6 per cent, again lower than for the year to March 31 but slightly higher than analysts’ forecasts.
Burberry said foreign exchange movements were in its favour during the first quarter, pushing it to upgrade its latest forecast for full-year profit at its core retail and wholesale business by £10m. This would, however, be offset by a “more adverse geographic mix” because of the challenges in Hong Kong, resulting in no overall change to group profit forecasts.
Christopher Bailey, Burberry’s chief executive and chief creative officer, said the first-quarter performance was pleasing in light of “challenging” conditions.
“We are pleased with our performance in this first quarter,” he said. “While mindful that the external environment remains challenging, we will continue to focus on growth opportunities across channels, regions and products, with exciting plans for the year ahead.”
Burberry’s trading update came ahead of its annual meeting on Thursday.
The luxury retailer is no stranger to revolts over Mr Bailey’s pay. At the 2014 annual meeting, almost 53 per cent of votes cast were against the directors’ remuneration report in protest at Mr Bailey’s £20m package.
There have also been rumblings of a potential rebellion at this year’s meeting. Mr Bailey, who took up the dual role of chief executive and chief creative officer on May 1, 2014, banked almost £8m in pay and benefits for the year to March 31, 2015.
Questions & Answers
Q.Why are fewer Chinese shoppers travelling to Hong Kong to buy luxury goods?
Why are fewer Chinese shoppers travelling to Hong Kong to buy luxury goods?
Fewer Chinese mainlanders are heading to Hong Kong due to political tensions or hostility from locals. They are also taking advantage of changing exchange rates to shop in other destinations like Japan and South Korea.
Q.How much of Burberry's global revenue comes from Chinese shoppers?
How much of Burberry's global revenue comes from Chinese shoppers?
Chinese shoppers account for between 30 and 40 per cent of Burberry’s total revenues globally. They are still spending on trips to other parts of the world despite economic concerns.
Q.What was the overall sales growth for Burberry in the first quarter compared to the last financial year?
What was the overall sales growth for Burberry in the first quarter compared to the last financial year?
Comparable sales for the group as a whole rose by 6 per cent in the first quarter. This was lower than the 14 per cent growth recorded during Burberry's previous financial year.
Q.What is Burberry doing to stabilise sales in Hong Kong?
What is Burberry doing to stabilise sales in Hong Kong?
Burberry is attempting to target local Hong Kong residents through marketing events. Despite the challenges, the company insisted that all its stores in Hong Kong remain profitable.