Reinventing Burberry - Case Study Example

?REINVENTING BURBERRY Executive Summary Burberry is one of the best performing companies listed in the London Stock Exchange. This development is attributed to the organization's competitive strategy, which allowed it to survive and thrive in the intensely competitive luxury market. This paper explores this theme, identifying specific factors that enabled Burberry to address brand decline and strong competition, namely brand reinvention, global expansion, and excellent communication strategy. Introduction A look at the background of Burberry would reveal a truly British company. It is a fashion house established by Thomas Burberry in 1856, which became iconic for its check pattern and its outdoor line of clothing, particularly its trench coats. Its long years of existence and ties with the British historical narrative since the 1900s, established Burberry as a heritage brand. At present, it is a holder of Royal Warrants, which is a form of recognition that the establishment provides goods to a member or members of the royal family. These variables are inherent in Burberry’s branding and figure prominently in its competitive strategies. But during the 1980s, the company has experienced poor performance and this persisted way until the latter part of the 1990s. This changed in the past decade and the company is considered to be one of the best global brands in its category and is operating with record profit. Currently, Burberry has more than 500 stores in over 50 countries. This report will explore Burberry’s strategies, which allowed it to gain competitive advantage in the luxury market and achieve successful expansion overseas. The Luxury Fashion Market: An Analysis The luxury fashion market is composed of several categories but these are mostly dominated by apparel and footwear. It can also include leather goods, accessories and jewelries. While each of these can very well be considered a separate industry, companies tend to sell them all given the fact that they do overlap, mainly because they have the same consumer demographics and consumer demand profile. The fashion luxury industry – mature industry - caters to a specific group of consumers: the wealthy. These are those who need practical (since clothing and footwear are, of course, necessities) but prestigious products; and those who are fashion conscious. This variable explains why the industry emphasizes intensive marketing and advertising campaigns. The consumer demographics and demand profile, wrote Wagle (2003), also underpins how the overall industry demand is driven by “general economic trends, including changes in disposable personal income, consumer confidence, and consumer spending.” What this means is that in times of economic growth, the market’s demand is driven by the consumers’ need and impulse, whereas, during economic downturn, caution permeates the market. This is demonstrated in the poor performance of luxury fashion companies during the recent financial crises. The financial crunch, based on several empirical evidences, is proven to put pressure on the luxury market. The Global Economic Crisis Resource (2009, p.27), for instance, stated in one of its findings that “much activity in the luxury market has been driven by easy credit and perceived wealth” and that the crisis has significantly reduced the net worth of the rich, forcing them to cut consumption significantly. Today, the luxury fashion industry is a lucrative business due to globalization. The robust development of emerging economies such as China, India, Russia, and other countries, has led to an expanded demand for luxury goods. In addition, it also provided the opportunity to source cheaper materials and labor abroad. The integration of the international market has facilitated these trends and companies like Chanel, Gucci, Hermes, Louis Vuitton and Burberry effectively seized the opportunity to their advantage. However, it also increased competition and changed the dynamics by which products are made and sold to consumers. Competition As previously mentioned, Burberry has been a premium brand since it was established. But its performance significantly declined as demonstrated during the 1980s when the company operated with small shops and only few high-end outlets. This is mainly attributed to the increase in competition. As brands like LVMH entered the UK market, Burberry found itself on the defensive as they brought with them the strengths of their own brands. The French fashion houses are particularly successful. The links between France and luxury goods are strong and the products of multi-brand group such as LVMH, with its heritage of artisan skills in dressmaking and leather goods production, are valued the world over (Jackson and Shaw, 2006, p.62). In the luxury market, the French luxury house has the edge in the art and culture category. These are also depicted in the case of Chanel, with its powerful brand image or Hermes, which is renowned for its artisan leather products. Burberry’s image further took a beating when its products were extensively copied. A study (Moore and Birtwistle, 2004) reported that Burberry has been the object of extensive copying that the brand finally came to be identified with ‘chavs’ and, certainly, affected its competitiveness in the long-run. The competition and Burberry’s failure to thrive in such environment underscored an important point. Heritage, along with product quality, is a defining feature of luxury goods (Bruce, Moore and Birtwistle, 2004, p.160). But it is not something that Burberry has a monopoly of or has an advantage of. Gucci, for example, has long years of history and is identified with the much regarded Italian tradition of artisan work in leather goods production. This is also true in the case of Hermes, though in the French context. The perception of art, culture and artisan work is difficult to defeat especially when Britain, and by association its products, are often identified with country living (Werther 2011). Hence, in a saturated market, it was hard to stand out and brand weaknesses have far more negative effects. Aside from competition, the Porter Five Forces Model cited four other factors that could be used to characterize the luxury fashion industry and the following sections cover them in brief: Supplier Power: Globalization has paved the way for the emergence of large supplier sector, which allowed luxury fashion companies to source materials overseas for lesser cost. In addition, companies like Burberry have relocated some of their manufacturing facilities in Asia, with its skilled but cheap labor and other low-cost regions in the European Union. Buyer Power: In the fashion luxury industry, buyer power is tightly controlled because the fashion companies and retailers can rely on the market’s indifference to pricing. A cheaper price is always equated with a weakened brand. Threats of New Entrants: While there is a relatively low barrier to entry, small companies find it difficult to survive in the industry because they do not have the marketing resources, which, as has been cited in this report, is very important. Threats of Substitutes: As in the case of Burberry, the threat of substitutes may come from extensive copying. However, the industry enjoys a market, which does not entertain substitutes for premium products. Burberry’s Strategy Since listing in the London Stock Exchange, Burberry’s annual revenues have grown by 272 per cent (London Stock Exchange, 2013). The forecast (Financial Times, 2013) as of February 25, 2013, based on 23 polled investment analysts, advised investors to "hold their position in the company" because the consensus is that "Burberry Group plc would outperform the market". This is Burberry’s current performance. This section will outline the competitive strategy, which allowed the company to gain competitive advantage and achieve such status. Such strategy is composed of three core elements: brand reinvention, global expansion, and effective and integrated communication strategy. Reinvention Burberry’s fate changed when Rose Marie Bravo, then Angela Ahrendts became the company’s Chief Executive Officers, respectively. Bravo took the helm in 2006 while Ahrendts, the current CEO, succeeded after she retired. Both of these women are Americans and they were young. Together, they reinvented Burberry, reenergizing its position in the global luxury market. The new campaign sought to sell “Britishness” or the British lifestyle but infused it with a youthful vibe and vitality, resulting to a fresh and still premium image for the product. Christopher Bailey, Burberry’s Chief Creative Officer Burberry, explained this best when he said that strategy is to communicate Burberry as a young old company: "Old in terms of heritage and history but with a very young team, a very young energy – and for me, that's a wonderful combination" (Walker, 2013). The strategy was successful because it did not pursue an overly dramatic change but instead worked to enhance the brand’s tradition. It avoided the failure of similar rebranding strategies such as failure of the initiative of the British government to rebrand Britain as hip and cool (Werther, 2011). The rebranding was complemented by effective initiatives such as segmentation. It began when Burberry diversified into sub-brands under Bravo. Initially, there were Burberry London, Burberry Prorsum and Thomas Burberry. Each of these lines caters to a specific market: London for the classic customers; Prorsum for the fashionable and modern; and, Thomas Burberry for teenagers (Kapferer, 2008, p.448). Additional lines were then added as Burberry expanded overseas to cater to the local requirements and sensibilities. Based on Burberry’s performance in the past 13 years, it appeared to have worked. Expansion Burberry posted great strides in performance because of its successful internationalization initiatives. It has successfully penetrated new markets, which is a foundation of a successful multinational company. Much of this can be attributed to the vision of its management as reflected in the manner by which Burberry displayed its capacity for innovation. Burberry was one of the first to have recognized the potential of China and Japan, for instance, as a luxury market. Their activities in these countries displayed a deep knowledge of the local market and were eventually manifested in their products and services. For instance, Burberry has exclusive Blue Label and Black Label only in the Japanese market (Burberry). In its most recent annual report (Annual Report 2011/2012), for example, it was found that a big chunk of its revenues came from overseas operations, particularly from emerging markets such as China, India, Russia and the Middle East. With a total revenue of ?652 million, the Asia Pacific market – dominated by China and Japan - eclipsed the revenue performance of Europe and American operations (Annual Report 2011/2012). Burberry also takes advantage of the globalization phenomenon to make its production more cost efficient. In the year 2006, it is one of the first luxury brands to outsource from locations in the European Union and Asia. Communication Strategy Finally, Burberry maintains a very effective communications strategy, which also complements the company’s focus on providing impeccable consumer experience. Fundamentally, such strategy requires strong links with opinion leaders. First, it employed a roster of celebrity endorsers, who are trendsetters in their category. Secondly, Burberry embraced technology and successfully integrated it with their operations. For example, high technology implements such as RFID technology touch screen computers and tablets are available in its stores, which enhance the experience of modern and tech-savvy consumers. The company also took advantage of the Internet: it launched an online store; it began streaming fashion shows over the Internet; and, it is a pioneer in using social media for its marketing initiatives and customer relationship management. The importance of Burberry’s communication strategy addresses the main requirement of- and the challenges to marketing and promotion, which are critical dimensions to selling luxury goods to its target market. In addition, the mechanisms used: the facilities, technological tools and infrastructure, the Internet - also helped the company to achieve a high degree of integration of its operations. It is a backbone of Burberry’s relationship with its suppliers, its global stores and its customers. Bailey articulated the company’s drive to integrate and link everything that they do, pointing out that their activities - from their headquarters, their store, their updates on Burberry.com to updates in Twitter and Facebook – are coordinated to present to their market the “one world” of Burberry experience (Cronin, 2012). To support its digital campaign Ahrendts commissioned an enterprise software to monitor and respond to the social media buzz and facilitate communication with its consumers. In last quarter of 2012, Mashable (Wasserman 2012) reported that, among the global fashion brands, Burberry leads in the social media roost through a study undertaken by Starcount. Here, Burberry leads Louis Vuitton, Zara and Valentino – the only other luxury fashion brands in the top ten ranking. The collective social media engagement in YouTube, Facebook, Twitter, Google, among other social media websites is significantly larger and this is consistent over time. The company is well entrenched in this position having began their campaign early. If one would go back to policy statements, Burberry has indeed recognized the potential of social media even before competitors joined the fray. This is, for instance, expressed in what Bailey stated in one of his interviews. Future Direction and The Issue of Sustainability Today, much of Burberry’s strategies and activities are also employed by its competitors such as Chanel, Hermes and Gucci. These fashion houses have also built successful global presence, including effective outsourcing strategies. They also have extensive Internet presence, with their respective online stores and digital marketing strategies. The competition in these respects became closer than ever and it is difficult to sustain a competitive advantage in this setting. In order to address this future/sustainability concern it is important to leverage the Burberry brand. The company needs to take advantage and reinforce its brand momentum. These necessitate – as recognized in its recent annual report (Annual Report 2011/2012, p.32) – a pure and consistent global brand articulation. Burberry has an edge in this respect. It has comprehensive and strongly integrated digital activities unrivalled by its competitors. It should allow for more innovative and effective marketing activities given the permeation of digital media. It also complements a unique customer experience identified with its brick-and-mortar and online stores. Particularly, the investments on social media should demonstrate this strength. Social media engagement is important because of the sheer number of users involved. An analytical report for Facebook generated using the Google Ad Planner tool (Google 2011) revealed staggering statistics: 600 million users worldwide and 25 million British users; 770 billion page views and 23 hour-average of visitors’ use. A report by Strategy Analytics (Business Wire, 2007) revealed that in 2012, the one billion mark was breached, with one out of 6 people on earth will using social media. The British users has jumped from 22 percent back in 2007 to 44 percent in 2009, with exactly 35 percent going online through social media at least once every week (Shayon, 2010). Being able to reach these numbers of people is crucial for Burberry as a global brand. What it means is that it can penetrate more market and position its products effectively and swiftly given the technological capabilities of the Internet. References Bruce, M., Moore, C., and Birtwistle, G., 2004. The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term. London: Routledge. Burberry, 2012. Burberry, Annual Report 2011/12, London: Burberry PLC. Burberry Celebrates 10 years on London Stock Exchange, 2012. London Stock Exchange. [online] Available at: [Accessed 25 February 2013]. Burberry Group PLC: Consensus Recommendation, 2013. Financial Times [online]. Available at: [Accessed 23 February 2013]. Burberry Group PLC, 2013. London Stock Exchange [online]. Available at: [Accessed 24 February 2013]. Business Wire, 2007. "Social Media Users to Exceed One Billion By 2012: Long-term Financial Viability will Depend on Targeted Advertising Success" Business Wire [online]. Available at: [26 February 2013] Cronin, E., 2012. Burberry: entrenched in the digisphere. Telegraph [Online]. Available at: [Accessed 26 February 2013]. Global Economics Crisis Resource Center, 2009. Global Economic Crisis: Impact on Business. New York: Cengage Learning. Google Ad Planner, 2011. Facebook. Google.com [online]. Available at: [Accessed 26 February 2013]. Jackson, T. and Shaw, D., 2006. The Fashion Handbook. London: Routledge. Kapferer, J., 2008. The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term. London: Kogan Page Publishers. Moore, C. and Birtwistle, G., 2004. The Burberry business model: creating an international luxury brand. International Journal of Retail and Distribution Management, 32(8), 412-422. Shayon, S., 2010, "UK Social Media Users More Wary, Also Deluded." Brand Channel Online [online]. Available at: [Accessed 26 February 2013] Wagle, Y., 2003. "Industry Profile: How the Industry Operates." Standard and Poor's Industrial Survey. Walker, H., 2013. 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