Burberry, the fashion brand famous for its check designs, said today that it was closing down its factory in Rotherham with the loss of 290 jobs – about 15% of its UK workforce. On the face of it, its latest revenues figures were pretty impressive: a 9% jump in the three months to December. However, Burberry said this was partly due to heavy discounting, which has cut margins (presumably from ‘very high’ to ‘quite high’) – so it’s decided to take drastic action. It’s another sign that very few companies are immune from the current turbulence…
Burberry’s latest round of job cuts are part of a £50m cost-cutting programme, as the group looks to respond to falling demand around the world. As the recession bites, its wealthy customers are clearly deciding that perhaps they don’t really need that £200 scarf or £800 handbag – and frankly, who can blame them? So Burberry is cutting its cloth accordingly: as well as the UK redundancies, which will result in all UK production being shifted to its Castleford plant, it will also be shedding another 250 jobs in Spain (which, like the UK, is an economic basket case at the moment). It hopes this will bolster margins ahead of a tough trading period.
The prevailing wisdom is that luxury goods companies tend to do pretty well in recessions, on the grounds that their monied clientele are usually too rich to be worried about such trifles. However, this is clearly a different type of recession – with the problems in the financial and property sectors, even the rich are feeling the pinch (the Sunday Times even claimed this weekend that Roman Abramovich is trying to sell Chelsea, although given the ensuing libel threat, we heartily disavow such claims). As a result, even high-end fashion labels like Burberry are feeling the pinch.
And it’s not the only one: Richemont, the Swiss company behind Cartier watches and Montblanc pens, said yesterday that its sales in the Americas (its key market) tumbled by more than 25% in the last quarter of 2008. The luxury goods group (second in size only to LVMH) said it was facing the worst trading conditions in its 20-year history, and it’s not expecting to see a recovery any time soon. That’s pretty gloomy, as trading statements go.
One problem for these high-end labels is that heavy discounting is a dangerous business, because it runs the risk of cheapening the brand – i.e. the very thing that underpins their high prices. Burberry has already spent years fighting the damage done to its brand by all the cheap knock-offs that flooded the market in the early part of the decade – pretty successfully, it seems to us. But if it wants to sustain this progress, it will have to tread very carefully during the coming months...
In today's bulletin:
President Barack Obama's poisoned chalice
Deflation worries grow - but RBS bounces back
Burberry downsizes as progress checked
Asos boosted by young trendies
Editor's blog: The problem with British cars