Burberry pins hopes on Chinese recovery as Covid chaos takes its toll

The world’s leading luxury brands are pinning their hopes on a Chinese resurgence after the country dropped its disastrous zero-Covid policy.

Burberry and Cartier owner Richemont are hammered by on and off lockdowns in China – a key market for luxury companies.

Yesterday they said the Christmas trade was hit by a flurry of Covid infections that followed the easing of restrictions.

China abandoned its controversial zero-Covid strategy in December after the most widespread protests since the 1989 pro-democracy movement.

But the reopening of malls, markets, restaurants and other venues sparked a wave of infections.

Richemont, which also owns Van Cleef & Arpels and Net A Porter, said this meant closing stores or reducing opening hours. Sales in China fell 24 percent in the last three months of 2022 from a year earlier.

China’s woes nearly wiped out an otherwise excellent performance, as wealthy shoppers continued to buy luxury goods elsewhere. Total turnover was £4.7 billion, up 5 percent from a year earlier.

Burberry blamed ‘significant disruption’ from lockdowns and the reopening of China’s economy for a huge drop in sales there.

The British company, famous for its trench coats, saw Chinese sales drop 23 percent in the last three months of 2022.

The disruption weighed on what new boss Jonathan Akeroyd described as an otherwise ‘pleasant’ performance. Excluding China, Burberry’s sales rose 11 percent, driven by a strong performance in Europe, where sales rose about a fifth.

It was helped by double-digit growth in its leather goods, such as the Lola handbag and the Frances bag.

Womenswear also grew by about 15 percent, with demand for dresses and knitwear booming, while sales of coats and jackets outside China rose by nearly a tenth. Total sales rose 5 percent to £756 million.

Burberry shares rose 3.3 percent or 74 pence to 2,317 pence. Akeroyd, who took over last April, has changed direction from predecessor Marco Gobbetti to take on European rivals LVMH, Gucci owner Kering and Hermes.

The 55-year-old has vowed to focus on Burberry’s British heritage and bolster its luxury reputation.

It comes after the shares dramatically underperformed rivals, growing 44 percent over the past five years, while LVMH’s has risen more than 230 percent.

Akeroyd has recruited Bradford-born Daniel Lee as chief creative officer to replace Riccardo Tisci, who left in November. Lee, formerly of Bottega Veneta in Italy, has been tasked with strengthening the bond with ‘British design, craft and culture’.

Lee has pledged to help “write the exciting next chapter for this legendary British luxury brand.” His debut collection will be unveiled next month at London Fashion Week, showing it’s “potential as the modern British luxury brand.”

Akeroyd pledged in November to double sales of leather goods, footwear and women’s clothing, improve performance online and increase its focus on accessories.

The former Versace boss hopes his plans will help Burberry reach £5bn in annual sales, up from £2.8bn for the past financial year.

Analysts said China’s reopening would kickstart the boosters. Interactive Investor market leader Richard Hunter said: ‘The relaxation of Covid’s zero-tolerance policy has yet to be reflected in the numbers, and this could be an area where Burberry is gaining a significant advantage.

“Traditionally, it has reaped the rewards of Asian tourism spending, and the possibility of pent-up demand from locked-in consumers could lead to a spiraling spring effect that would complement progress made elsewhere.”

Hunter added that Burberry’s marketing campaigns and futuristic new stores make it “increasingly relevant to a new generation of customers.”