Burberry pins hopes on accessories
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LOS ANGELES: In an upmarket mall where movie stars shop, Burberry is testing a new kind of store that may help it weather a cooling U.S. economy and budget cuts by the bankers who typically favor its conservative suits and coats.
The British luxury goods house, whose brand has been experiencing its biggest revival since its clad British soldiers in trench coats in World War I, has come to Hollywood to tap into celebrity-led lust for high-priced handbags. And there's barely a trench coat or a flash of its signature check in sight.
Instead, the store, named Icon after Burberry's higher-end ranges, is crammed with accessories. Rows of sunglasses flank the entrance from floor to ceiling while shelves fairly drip with shoes and handbags including the hit this season, the studded Knight bag retailing at $2,995. Perfumes, watches and jewelry crowd the register area.
Covering 2,600 square feet, or 240 square meters, a quarter the size of Burberry's London Knightsbridge flagship store, the compact format still seeks to maximize the temptation to customers.
"It's cute," said Sarah Lukes, 37, browsing the Beverly Center store before Christmas. "I didn't realize they made watches and so many shoes. I usually think about them for down jackets and trench coats."
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On a visit that also took in nearby Louis Vuitton and Gucci, Lukes had homed in on a pair of Burberry's quilted golden ballet pumps costing $475 and the Knight bag that has been photographed on the arms of the celebrities Cameron Diaz and Sienna Miller.
For Burberry, there is nothing cute about the project. The Icon store - four are in the United States and one is in Prague - is part of a bid to close the gap with rivals like LVMH Moët Hennessy Louis Vuitton, whose flourishing trade in accessories has helped its shares to trade at a 33 percent price/earnings premium to Burberry's, based on 2009 forecast earnings.
The biggest British fashion house hopes that, by expanding beyond its trench coat origins into costlier accessories, it can reach buyers of $3,000-plus handbags and top-tier shoes, who may be relatively immune to economic hardship.
During the six months through September, Burberry made a third of its £254 million, or more than $498 million, in sales from accessories. In the spring, it will begin selling a handbag called Warrior in golden alligator skin for £13,000.
"The Icon store test and the expansion into accessories are welcome," said Melanie Flouquet, a JPMorgan Chase luxury goods analyst who last week upgraded her recommendation on Burberry stock to "overweight" from "neutral."
She argued that a steep sell-off of Burberry shares in the past six months - prompted by concerns among investors that it was more exposed to a downturn than its more diversified rivals, as well as a warning this week that the company might not meet its full-year forecasts - was overdone. Investors have cut the value of Burberry's shares by 40 percent in the period, deeper than the 14 percent fall for the Dow Jones Stoxx personal and household goods index, which includes European rivals like LVMH, Christian Dior and Richemont. On Tuesday, the stock registered its biggest fall since it was listed in London in 2002.
That weakness was driven by a lower-than-predicted 14 percent rise in retail sales in the third quarter and concern that it is more exposed than rivals to a slow down in middle-income spending.
The shares' weakness was driven by higher-than-expected costs for information technology infrastructure and concern that the small size of Burberry's premium business leaves it more exposed to a slowdown in middle-income spending.
Angela Ahrendts, chief executive of Burberry, said in November that she was "excited" by early results from the Icon stores. But she stressed that they were still on trial and it would be six more months before any decision would be made about "investing aggressively" to extend the format.
That could result in Burberry operating four different sizes of stores in affluent areas like Boston; Austin, Texas; Tampa, Florida; and Los Angeles, where the U.S. Icon trials are taking place.
The company's finance director, Stacey Cartwright, reiterated on Tuesday that Burberry management was "delighted" with the trial of the store format and would decide on future steps after the end of the financial year in March. Burberry's non-apparel business "piled on 30 percent of growth" in third quarter, she added.
The brand's design director, Christopher Bailey, backstage in Milan for a menswear show, was unfazed by talk of crimped consumer spending and said the accessories business was "going unbelievably well."
"The business is on fire," Bailey said after he sent models down the runway wearing leather and woollen gloves and hats and carrying voluminous leather totes.
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