Burberry (BRBY.L) shares surged 18% on Wednesday after the British luxury brand announced plans to shed 1,700 jobs, or around a fifth of its global workforce, in a bid to cut costs and revive its performance. This is part of the brand’s early-stage turnaround effort, led by CEO Joshua Schulman, who is focused on reversing the group’s years of underperformance compared to luxury rivals.
Job Cuts and Factory Changes
The job cuts, set to occur over the next two years, will primarily affect office roles, while a night shift at Burberry’s trench coat factory in Castleford, England, will be cancelled. Schulman stated that having two shifts at the factory had led to “overproduction,” and cutting the night shift is crucial to maintaining Burberry’s manufacturing presence in the UK.
Schulman’s Vision for Burberry’s Future
Schulman, who took over as CEO last year, has shifted Burberry’s strategy to focus on marketing Britishness and selling more trench coats and scarves. This comes after the brand faced challenges such as product missteps, excessive price hikes, and a broader downturn in luxury sales. Schulman noted that the customers Burberry is targeting, who had been declining for three years, are now excited about what they see from the brand.
Fashion Show and Positive Results
Burberry’s February fashion show led to “double-digit increases” in purchases from retailers who had significantly reduced their orders in the past two years. The company expects additional savings of 60 million pounds by 2027, on top of the previously announced 40 million pounds, as part of its cost-cutting measures.
Market Reaction and Future Outlook
Shares in Burberry jumped 18% after the better-than-expected results and positive tone of Schulman’s update. Analyst Luca Solca from Bernstein commented, “Clearly the compounding of better top-line and lower costs would produce a significant profit progression.” Schulman’s confidence in the brand’s future appears to have resonated with investors.
Challenges Ahead
Despite the positive update, the company faces challenges, particularly with the outlook for U.S. consumer spending. Schulman’s focus on American shoppers to boost Burberry’s sales may be complicated by a slowdown in U.S. consumer demand. The U.S. market represents 19% of Burberry’s business, and Schulman acknowledged that the situation in the U.S. had become “choppy” as they headed into February.
Luxury Brands’ Struggles in the U.S.
Other luxury brands have also reported weakness in the U.S. market. For example, Kering, the owner of Gucci, mentioned a significant decline in U.S. consumers buying their products. Mario Ortelli, managing partner at Ortelli & Co., stated, “The U.S. was seen as a goldmine for all the luxury brands in the last part of last year, and then things turned pretty fast.”
