Daily Management Review

Hong Kong, China Sale Slump Reduces Overall Growth Rate for Burberry


07/15/2015




Citing a classic example of how political unrest can affect international Business, Burberry, the British retailer, famous for its trench coats and cashmere scarves, recorded a sharp drop in sale in the first quarters owing to a slack Hong Kong Market. The company said that the sharp fall in revenue for the company from Hong Kong was a direct result of reluctance of the Chinese to travel to a trouble prone Hong Kong and even face local anger.

There was a prolonged pro democracy protests in Hong Kong earlier this year as the residents demanded more autonomy and freedom from Beijing. The protest that often took violent turns resulted in many of the local and foreign retailers suffering business losses. The British group was no exception. Reports of the company say that the slump in business and trading following the protest never really picked up since lesser number of people from the mainland of China came to Hong Kong to purchase luxury products that previously. Moreover a strong Chinese currency encouraged the Chinese travellers and luxury shoppers to travel to other destinations such as Japan and South Korea.

In the first quarter of this year, Burberry recorded a double digit fall in sale in Hong Kong compared to last year, said company communication on Wednesday.  The overall retail sales growth of the group fell from 14 percent in the last fiscal to 8 percent in the first quarter of 2015-2016. The drop in sale has been primarily accorded to the dramatic drop in sale in the Asia Pacific region coupled with a deceleration of double-digits in Hong Kong. However the results were in line with the forecast for the sales by experts keeping in mind the political unrest in Hong Kong.

The high margin market of Hong Kong was one of the critical factors that made the company announce a guidance of an increase of about £10 million in retail and wholesale profits.  However the diverse geographic mix of Burberry’s market could offset the guidance particularly due to the slow progress in Hong Kong.  

The first quarter saw the company clock double-digit growth in Europe, Middle East, India and Africa as sale rose by 6 percent. The comparable growth year to end-March was 9 percent.
 
China too proved to be bad for the company in the first quarter as the Chinese market grew by a low single-digit percentage compared to the same period last year. .
 
For the group as a whole, the retail sale revenue in the first quarter increased by 8% underlying and 10% at reported currency rates to touch £407 million while the figure was £370 million for a corresponding period last year.
 
Commenting on the first quarter results, the group indicated that profit before tax for the full year would be more dependent on the second and third quarter performance. Last year the group had made 67 percent of its profits in the second half of the year.
 
The overall growth of the group was prompted by good show in the markets of France, Italy and Spain coupled with high single-digit percentage comparable growth in the United States. The digital platform, particularly the mobile, also helped the group drive up sale even as demand for heritage trench coats and scarves outperformed other product categories.
 
 (Source: http://www.digitallook.com)






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