Burberry says coronavirus hits sales as footfall plunges, some stores close
Burberry issued a surprise update on Friday as the impact of the coronavirus and uncertainty over how long it will continue meant previous guidance might have to be torn up. Measures taken to combat the tragic outbreak are continuing to have a major impact on sales of luxury sector companies in China and (to a lesser extent) abroad, and Burberry is in this group given that around 40% of its sales are to Chinese customers.
On January 22, it had said it expected total revenue for the 2020 financial year that ends in March would be up by a low single-digit percentage currency-neutral. It didn’t issue any specific figures on Friday, but it’s clear that prediction need to be revised downwards.
The company said the outbreak in Mainland China is “having a material negative effect on luxury demand” and CEO Marco Gobbetti said that 24 of the brand’s 64 stores in Mainland China are closed at the moment. Its remaining Chinese stores are operating with reduced hours and “seeing significant footfall declines”.
This is impacting retail sales in both Mainland China and Hong Kong, the latter location having already seen significant sales drops last year. As we heard last month, its Hong Kong business had been reeling from the impact of the protests in the semi-autonomous region and Burberry’s sales there had halved in Q3.
The label has big plans to drive growth in China this year and with the firm having previously reported an “excellent response” to its Lunar New Year activities, this latest update is clearly bad news.
The company did say that spending patterns of Chinese customers in Europe and other tourist destinations “have been less impacted to date, but given widening travel restrictions, we anticipate these to worsen over the coming weeks”.
That makes sense. Anecdotal evidence suggests that those Chinese tourists who travelled before the outbreak led to mass trip cancellations are still spending. But when they return home, there will be fewer tourists replacing them so the big impact for stores in Europe could come later this month and in March.
The firm is “taking mitigating actions and every precaution to help ensure the safety and wellbeing of our employees,” Gobbetti continued.
And in some ways, the company is trying to take a business-as-usual approach and intends “to continue our key growth initiatives in preparation for a recovery in luxury demand”.
The CEO said he’s still confident in the firm’s strategy and is “very pleased with the positive response to our brand repositioning and new product. We will continue to focus on newness and fashion, and on inspiring and engaging our customers globally”.
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