China sales boost Burberry

Daniel Lane

Daniel Lane - Fidelity Personal Investing

British fashion stalwart Burberry today reported increased demand in Asia for its classic macs and current streetwear-inspired lines. The FTSE 100 firm said appetite from mainland China remained steady, with a ‘mid-single’ digit rise in sales in the region despite troubling times for the brand’s luxury peers.

China sales boost Burberry

Louis Vuitton-owner LVMH and Prada have felt the heat of declining interest among high-end Chinese shoppers, with many pointing to fears over a US-China trade war and maturing economic growth as headline reasons for the slowdown.

Elsewhere, the company reported comparatively weaker footfall in its US division and a marginal uptick in tourist trade across Europe, all adding to a dip in overall retail revenue to £711m in the third quarter from £719m in the same period last year.

The market has sent Burberry shares slightly lower on the news however news of a consistent Chinese fan base will be encouraging to long-term holders of the stock. Investors in the firm have had a rough ride over the past year, especially since Burberry shares slumped in October on the back of disappointing sales for LVMH, but this morning’s update shows it’s not one size fits all in the fashion stakes. While the British clothier’s numbers include the important calendar year-end period as opposed to pre-Christmas trade, it’s a further sign that retail fortunes are diverging even at the luxury end of the sector.

The market has taken time to digest what has been a transformational period for the brand, as it seeks to position itself among only a few elite and exclusive global fashion houses. The company is currently rethinking its retail footprint as a result, pulling out of department stores and planning to open ten new stores of its own before the end of its financial year. As chief executive Marco Gobbetti looks to redefine the highest end of luxury shopping, investors have seen much more attention paid to Eastern markets, trying to tap into a loyal and wealthy fashion-conscious community.

The well-publicised collaborations between the likes of LVMH and streetwear brand Supreme may have detracted from Burberry’s presence among sought-after marques but investors will be pleased that the company has supported its Asian offering well even before it begins to think about collaborating. What’s more, the results come ahead of next month’s runway collection due from new creative director Riccardo Tisci, after a number of his limited editions were well received.

The lesson here is one of patience and diversification. A shift in corporate strategy can make investors nervous however when the transition is managed well and new markets are not explored at the cost of current consumers, the pay-off is evident. With China‘s apparently slowing economy still hitting a 6.6% growth rate, Burberry will be hoping to clothe the wealthy for some time to come.

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