The Burberry share price has slumped by almost 5% today after the fashion designer and retailer announced a 45% drop in sales over the quarter to the end of June. The company announced that 500 jobs will be axed as it attempts to tighten the ship to navigate the post-coronavirus economic landscape.
Burberry sales in Europe and the United States, rather than in China and Asia where sales figures were positive, were behind the downturn in the company’s fortune. Sales in the two regions were down by around 70% each. With 60% of Burberry’s boutiques shut down over the lockdown, which affected most of the quarter, that perhaps comes as no surprise.
A majority of the 500 positions to be cut will come as a result of efforts to “streamline its head office”. It is thought that around 150 jobs will be shed in the UK – the equivalent of around 4% of its headcount of 3500 in this country. The other 350 jobs to be cut will be overseas and part of a strategy of “improving retail efficiency”. Across the company, the job cuts will impact around 5% of the total international workforce.
Office space will also be reduced with more roles expected to move permanently to work from home or part work from home status. In total, the changes are targeting £35 million of savings in the first year, rising to £55 million of annualised savings thereafter. A one-off cost of £45 million is expected to be incurred.
Despite the devastating impact of the Covid-19 lockdowns internationally, Burberry’s sales did show encouraging signs of recover in June, when figures were only down on last year by around 20%. Perhaps surprisingly, sales in China and South Korea were actually 30% up on pre-pandemic levels. With boutiques now opening up across Europe and the USA, there will be hopes for a similarly strong bounce back.
Only around 15% of shops still remain shuttered internationally. But a drop in tourism, especially from China and Asia, is expected to weigh on revenues in locations such as London, where tourist footfall accounts for a significant percentage of sales. Marco Gobbetti, Burberry’s chief executive, stated:
“In quarter one, sales were severely impacted by the drop in luxury demand from Covid-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel. We are encouraged by the improving trends in all regions and the promising exit rate for June. We saw an excellent response to new product launches in recovering economies as well as online.”
In forward guidance, Burberry informed investors it expects second quarter sales to the end of September to continue to stall on the impact of the pandemic. Figures are expected to be down between 15% and 20% on last year. Wholesale revenues generated in department stores and through online retailers selling Burberry products are expected to be down by between 40% and 50%.