(Bloomberg) -- Burberry Group Plc’s recently appointed chief executive officer pledged to return the British fashion brand to its roots as a maker of trenchcoats and scarves in a move welcomed by investors.
Shares of Burberry rose as much as 15% in early trading in London, after Joshua Schulman said he would undo the missteps of previous management teams who had tried to push Burberry too hard and too fast into the upper echelons of the luxury sector and lost loyal customers along the way.
Schulman, who was named to the top post in July, said his plan to refocus on outerwear, where Burberry is known for check print gabardine trenchcoats, would return the fashion house to its heydey when the company was profitable and hitting annual sales of £3 billion ($3.8 billion).
The former CEO of Michael Kors’ vision was presented in a statement Thursday as Burberry reported a 20% drop in comparable retail sales for the quarter ended Sept. 28. Analysts had expected a slide of 21%. The company also swung to an adjusted operating loss of £41 million in the last six months.
In a call with reporters, Schulman said he’s more optimistic than ever about Burberry’s future. The American chief said he had used his first 90 days in charge to kickstart an annual £40 million cost-savings initiative, hire new leaders in marketing, product merchandising and the Americas divisions, and raise the profile of its outerwear offerings in stores and online.
Schulman also highlighted the launch of a global “scarf bar” initiative starting with its flagship store on 57th Street in New York.
Burberry has struggled in the past few years as efforts by past management — most recently Jonathan Akeroyd, who was pushed out in July — to move the brand upmarket and drive sales of expensive leather handbags faltered. The stock has almost halved so far this year in London through Wednesday’s close and in September Burberry was ousted from the FTSE 100 index.
Schulman said it was clear that repeated efforts by Burberry to pursue “brand elevation” and push up prices, particularly in leather goods, had alienated customers and skewed its offer to a much more narrow base of luxury spenders. This strategic mistake was aggravated by a global downturn in luxury demand, particularly among Chinese shoppers who are a key demographic for Burberry.
Brand Position
However, Schulman said he has no intention to take Burberry downmarket, instead he still wants to “earn authority” in categories, other than just outerwear, by offering quality products with sensible prices.
Burberry has a sweet spot to offer handbags costing below €2,000 (£2,105) , he said on the call, rather than trying to push prices as high as in the past two years when some top-of-the-line products were priced at more than double the company’s best sellers.
Schulman said Burberry enjoys the strongest pricing power in its outerwear, the origins of which it can trace back to the 19th century when founder Thomas Burberry invented the lightweight, weatherproof gabardine material. A recent ad campaign featured model Cara Delevingne wearing an aviator jacket costing £4,490.
Chinese customers will also eventually come back after the current downturn there, said Schulman, who added that Burberry has “all the attributes” to be a globally relevant luxury brand.
As part of Schulman’s efforts to steady the business, Burberry will also improve how its stores are run, “rebalance” the product assortment sold online and “reignite a high-performance culture.”
Burberry’s half-year performance “bears the scars” of unsuccessful attempts to elevate the brand, said James Grzinic, an analyst at Jefferies.
The “magnitude of pressures” that Burberry is facing remains “eye-catching,” he said.
--With assistance from Joel Leon and James Cone.
(Updates with management comments, more context throughout.)
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