How Burberry misreads the market with its £2,500 handbag

Burberry’s holiday advertising campaign featured images of dogs, ducks and a luxury blue leather handbag. It was placed next to an old knight’s glove.

Daniel Lee, Burberry’s new creative director, had high hopes for the knight bag when it arrived in stores in September. He hoped it would be the first iconic bag of the British brand. The bag was also priced at £2,490, which is far above the prices that fashionistas are used to.

The rub is in the details. The luxury market was experiencing a boom when Burberry’s Push Upmarket collection was created, but the 1 percent were already tightening up their purse strings by the time Lee’s collection was released.

In the face of rising inflation, declining asset values, and wars around the world, less shoppers visited Burberry stores. In the “golden quarter”, which is so important, like-for-like sales fell by 4 percent.

This was a monster profit warninging. Burberry expects an operating profit between £410 and £460 this year. This is down from the expectation of around £560 millions just two months earlier.

Jonathan Akeroyd is the chief executive and he wears a brave smile. He said: “We are still at the very beginning stages of bringing our new creative vision to life and we’re confident in our strategy for elevation.”

The timing of the announcement could not have been worse. Akeroyd noted that the relatively high sales of Burberry trenchcoats and scarves indicated that consumers, in the prevalent mood of caution were gravitating to products from brands that are well-known. He admitted that Burberry still had a long way to go before it became a premier destination for shoes and handbags.

Burberry is confident in the success of their “elevation” strategy

Akeroyd outlined his plan 14 months ago in the basement Burberry Regent Street’s store to double leather sales, which have higher margins. This would help him push Burberry operating profit margins over 20 per cent.

Lee was recruited to achieve this. He is a rising star, who has changed the fortunes Bottega Veneta’s Italian luxury house with a series of hit bags such as the “pouch”, a squishy clutch bag.

After a few erratic years, industry observers had high hopes that Akeroyd – a cricket enthusiast who began his career at Harrods – and Bradford born Lee would return Burberry to British roots. Burberry revived an equestrian-knight motif that was created in 1901 for the brand.

Daniel Lee and Stormzy, a British rapper. They like Lee’s work, but they don’t want to pay double the price.

Burberry bags were selling for £990 on average before Akeroyd & Lee. According to Luxurynsight the consultancy, this year’s collection is retailing at an average of £1,700. The top-end clutch is the shearling “B Frame” clutch. It costs £3,590.

Burberry has moved in the right direction, but they are moving a little too quickly. Jonathan Siboni said that people like Daniel Lee’s work, but it doesn’t mean that they will pay twice as much.

Burberry claimed that its bag prices are supported by an increase in quality, and they do not differ from those of its competitors. Burberry was able to increase its prices due to the huge price increases imposed by the industry giants.

Chanel’s iconic 2,55 handbag increased in price from $5,800 to $10,200. Prada’s Galleria has increased to $4,300, up from $2,750. Louis Vuitton’s speedy handbag, the 30 in size, costs $1,550 compared to $1,160 a year ago.

Jonathan Akeroyd could need additional help to move his company upmarket

Akeroyd is sticking to his goal of raising total sales above the £5 billion mark in the “medium-term”, albeit vaguely, and says it’s too early to gauge the success of new collections. He praised Lee as one of the most talented designers in the business.

Luca Solca is a Bernstein analyst who said that investors would want to see Burberry begin to close the organic growth gap with industry giants like Kering and LVMH. Burberry shares fell 44 percent to £12.78 in the last year, which valued Britain’s leading luxury company at £4.6billion.

Akeroyd believes that the luxury sector will grow at a single-digit rate this year, but he might need some help to move Burberry upmarket.

Solca stated that “turnarounds are almost impossible on this type of market.”