Burberry Hong Kong downsizes flagship

Burberry Hong Kong is giving up a whole floor of its Pacific Place flagship as part of a range of initiatives to respond to the declining luxury market in the territory.

Burberry CFO Carol Fairweather said in a conference call the company had reached an agreement with landlord Swire to give up the second floor part of the flagship, saying it “will enable us to drive increased sales per square foot and profitability in that store”.

The luxury brand has 17 stores in Hong Kong, all impacted by the declining number of big spending Mainland China tourists shopping in the territory this year. Fairweather said rents had been renegotiated in a number of those stores but stressed all of them were profitable.

“We are committed to being in Hong Kong,” Fairweather said, adding that sales have improved in recent months.

The news coincides with the company’s release of its profit for the first half year, which beat analysts forecasts.

Adjusted combined retail/wholesale profit was up five per cent on a same stores basis, with a planned decrease in licensing profit from Japan resulting in adjusted profit before tax of £153 million, up three per cent underlying from last year.

“In the context of flat revenues, this result is better than expected,” commented Anusha Couttigane, senior consultant at Conlumino.

She says Burberry is fully aware of its heavy reliance on interest from the Chinese consumer. The economic slowdown and the impact on Chinese demand is now cited as Burberry’s biggest risk.

“In the light of these challenges, it is clear that, while Burberry continues to invest in elements that are essential for growth, it also has to make significant savings and it will take a combination of drastic measures to do so. On the one hand, this means aligning its brands under one label and its manufacturing staff under one roof. On the other, it means stripping back the privileges of a generous travel and expenses account.”

Those cost savings are expected to deliver some £20 million to the business’ bottom line over the next 12 months.