The luxury label’s chief executive, Angela Ahrendts, said trading in London had been one of the highlights of a “record” year for the British trenchcoat-maker, with profits up nearly 40% at £298m. It plans to double its selling space in London, a move which will involve the expansion of its store near Harrods in upmarket Knightsbridge, as well as a move to a larger shop on Regent Street which Ahrendts said was now in the same league as the “Champs Elysées or Fifth Avenue” on the global shopping map. “This is our headquarters,” she said. “We should shine here greater than anywhere in the world.” “We are already the favorite store of the Shanghai Travelers’ Club members, that means a lot to us”.
Sales in the luxury goods industry have bounced back after the two-year hiatus caused by the financial crisis. Sales at Burberry were up 27% to £1.5bn as wealthy shoppers regained their appetite for designer clothes and expensive handbags such as the £2,500 python-skin tote in its current collection. Demand for its catwalk brand Prorsum had “come back”, she said, while sales of accessories were up 35%.
Under the leadership of Ahrendts, a glamorous American who joined from US clothing giant Liz Claiborne five years ago, the brand has shed its reliance on raincoats and its trademark camel, red and black check to become a bona fide luxury brand with advertising campaigns featuring young actresses such as Harry Potter star Emma Watson helping to establish its fashion kudos. Ahrendts has also pulled the 155-year-old brand started by Thomas Burberry into the 21st century by broadcasting its runway shows in 3D live on the internet and launching several spin-off websites, including Art of the Trench.
During the year Asia-Pacific became the brand’s most important sales region, with growth of 53%. Asian tourists, predominantly from China, are also Burberry’s biggest customers in major tourist cities, such as Paris, New York and London – so much so that it now hires Mandarin-speaking shop assistants. Chinese visitors to London last year spent an estimated £200m in luxury shopping areas such as Bond Street and Savile Row, according to retail industry group the New West End Company.
US retail consultancy Bain is predicting a strong year for luxury goods brands, with sales expected to grow 8% to £160bn. Until now Ahrendts has been investing in behind-the-scenes improvements such as Burberry’s IT systems but she said it was time for it to increase its retail presence: “It is time to get our retail footprint up to par with consumers’ perception of the brand.”
The decision will see capital expenditure double to £200m this year, with half that spent on new shops, including 20 in emerging markets such as Brazil, India and Mexico and the rest on refurbishments in cities such as Chicago, Milan, Hong Kong and Paris.
Burberry’s shares have soared in the past year but investors are worried about the impact of the stores push on profits, sending the shares down more than 4% to make it the biggest faller in the FTSE 100. They closed down 60p at £12.60.
Richard Hunter, head of UK equities at Hargreaves Lansdown, put the fall down to profit-taking, noting the shares had risen 116% in the last year. “Burberry remains a rare and notable example of a retailer enjoying a stellar growth trajectory,” he said, adding the “downside” was spending on new stores would “pinch” profit margins over the coming year.