Breakingviews - Burberry checks right boxes on path to turnaround

Children's Burberry clothes are seen on display at the Nordstrom flagship store during a media preview in New York, U.S., October 21, 2019.

MILAN (Reuters Breakingviews) - Burberry is turning a corner. Strong demand for designer Riccardo Tisci’s new collections has helped the UK fashion group, which is famed for its checked patterns, offset protest-related disruption at its Hong Kong hub. And Chief Executive Marco Gobbetti has a new plan to help his push into mainland China.

Burberry on Thursday reported first-half revenue of 1.3 billion pounds, an increase of 3% from a year earlier at constant exchange rates. More importantly, it grew faster in the second quarter of its financial year than in the first. That was remarkable considering there was a double-digit decline in retail sales in Hong Kong over the first half of the financial year. Customers’ enthusiastic response to Tisci-designed products, which are taking up more and more floor space in Burberry’s stores, has lifted overall sales.

Granted, Hong Kong will continue to be a problem for Burberry and other luxury goods companies. Pro-democracy protesters have paralysed the city for the fourth day, while students across university campuses were preparing for a new clash with police. Disruptions to sales may last well into the second half of the financial year, according to Chief Financial Officer Julie Brown.

But Burberry is not resting on its laurels. A newly-announced partnership with digital behemoth Tencent, owners of uber-popular social media app WeChat, will help the UK group raise its profile in mainland China, where demand for luxury goods is still rising. The plan sees a futuristic store opening in the Shenzhen tech hub next year. Teaming up with Tencent won’t solve all of Gobbetti’s problems, and its success has yet to be proven. But it gives him the right to say that he is checking the right boxes.


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