Burberry hit hard by China slowdown

Chinese consumers have long been known to have an appetite for luxury goods, but it appears as if their enthusiasm for one of the UK’s preeminent fashion brands is beginning to wane.
Commenting on its second quarter retail sales, which it described as modest, Burberry said that it would have to adjust its profit before tax expectations for the 12 months to March 31st 2013.
It said that it expected this to be around the “lower end of market expectations”.
“As we stated in July, the external environment is becoming more challenging,” commented Angela Ahrendts, Burberry’s chief executive.
“In this context, second quarter retail sales growth has slowed against historically high comparatives. Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short term profitability, while continuing to execute on our proven five key strategies.”
One of the consequences of this could be a generous reduction in the cost of items from the Burberry range, which will no doubt interest Chinese customers and professional expats moving overseas who are interested in the brand.
In general, Burberry has been performing well, against all odds in such a constrained market. However, with more than £1 billion wiped off the company’s market value, it is facing serious challenges.
The company has owed this dramatic dip to the diminishing demand from China for its products, as the slowdown in its economy begins to be felt across the globe.
It has been reported that one of the reasons for the decline is the fact that the cultural phenomenon of luxury gift giving in the country has been experiencing something of a blip in 2012, thanks largely to people becoming more conscious of their spending habits.
“Clearly that’s having an impact,” Stacey Cartwright, Burberry’s chief financial officer, said in an interview with the Wall Street Journal.
“We called out in the last release the fact that the gift giving part of the business [in China] had slowed very significantly. Clearly there’s the changing of the guard coming very shortly, and we’ll have to see what comes after that.”
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