Burberry Group PLC Synopsis - SIMON FRASER UNIVERSITY
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SIMON FRASER UNIVERSITY
Burberry Group PLC
Synopsis
Darya Zozulya
Dominika Radomski
Elizabeth Boey
Hristijan Lozanoski
Alykhan Nathani
BUS 478 – D400
Jerry Sheppard
October 14, 2015Burberry History & Current Situation
Burberry is a British manufacturer and retailer founded by Thomas Burberry in 1856 in Basingstoke,
England. Initially, Burberry positioned itself as a developer and producer of outdoor attire (Burberry, 2015). In
1880, Burberry introduced the gabardine, a waterproof raincoat made out of breathable fabric. Ever since then,
the brand gained popularity and opened its first shop in London in 1891. Burberry switched its original name to
“Burberrys” since customers around the world were calling it “Burberrys of London”. In 1901, Burberrys
created a trademark for its logo, the iconic Equestrian Knight, and by 1914 was ordered by the War Office to
design warfare appropriate coats for the British officers (Burberry, 2015). This is how the renowned “trench
coat” was created which later became popular with civilians. In 1920, the iconic checkered pattern was
designed and used as lining for Burberrys’ products. Great Universal Stores, a large retailing group, bought out
Burberrys in 1970. In 1998, Burberrys changed its name back to Burberry and started a new prosperous era for
the company. In 2002, Burberry Group plc went public on the London Stock Exchange and in 2006 entered the
mass market through licensing. Burberry introduced its first online store in the UK in 2006 and by 2007 the
brand was selling online to the rest of the European Union. In addition, Burberry’s online presence to date is
well-established with over 4.6 million followers on Twitter and Instagram, and 17 million Facebook page
“likes”. The company is continuously trying to increase its digital platform to engage new customers.
Today, Burberry has five product divisions: Accessories, Women’s, Men’s, Children’s and Beauty.
The company continues to build its brand image based on British heritage and maintains steady sales growth. In
2014, overall sales increased by 17% resulting in revenues of over $2.3 billion (Euromonitor, 2015, p. 4).
Burberry has stores in 497 locations and employs 10,600 employees around the world (Euromonitor, 2015).
Burberry’s headquarters is located in London, UK. However, Burberry has only two production facilities in
Great Britain and most of the brand’s manufacturing facilities are located in China and Italy (Burberry, 2015).
General Environment
As a global retailer of luxury goods, Burberry is affected by a variety of general environmental
factors which will be assessed below:
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Demographic Segment
The majority of wealthy individuals in Western countries are above the age of 50. This compares to
emerging markets where the population in the top income bracket is mainly comprised of people in their 30s
and 40s (Euromonitor, 2015). Given these statistics, luxury brands need to tailor their marketing campaigns to
target consumers in these age segments. Another important demographic trend is the growth of the middle class
which creates opportunities for the sale of accessible luxury goods. There also exists opportunities for increased
consumption of luxury goods among millennials as they enter the workforce and gain greater purchasing power.
Economic Segment
In past years the emerging economies of Brazil, Russia, India, and China have created opportunities
for growth in the sale of luxury goods. However, the recent economic slowdown may be reducing the
purchasing power in these emerging economies, thus decreasing in-country sales and tourism shopping in
countries such as China (Euromonitor, 2015). The economic slowdown has further created global currency
volatility which negatively impacts the market for luxury goods by creating large price differentials across
countries (Euromonitor, 2015).
Political/Legal Segment
The political/legal environment is characterized by product manufacturing standards and labour laws
and regulations that need to be considered when setting up production in various foreign countries.
Furthermore, governments around the world charge tariffs on imported apparel, placing the burden on
consumers and potentially decreasing the demand for luxury goods (Lamar, 2015, para. 4). Finally, political
developments such as the Chinese government’s recent crackdown on extravagant gift-giving by officials
must be examined as they affect the market for luxury goods (Euromonitor, 2015).
Sociocultural Segment
From a sociocultural standpoint, rising health concerns from consumers “may lead to a greater
customer interest in the materials used and their origin and their processing methods” (Gockeln, 2014, p. 7).
The increasing participation of women in the workforce has had a significant impact on the luxury goods
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industry, as the proportion of women’s sales has been increasing. This demand of luxury products by women
is expected to grow as their purchasing power becomes more on par with men (Euromonitor, 2015). A
cultural focus on the luxurious lifestyle, as depicted in pop music, movies, and reality television also
contributes to growth in the luxury goods market.
Technological Segment
Rapid technological advancements provide retailers the ability to discover new trends and “respond
more quickly to the latest market impulses” (Gockeln, 2014, p. 7). The increasing use of technology by
consumers has made internet retailing the fastest growing distribution channel for luxury goods in 2014. As
such, taking advantage of online distribution channels is imperative for growth, and efforts should be made
to strengthen marketing and retail through digital media. This is especially important in capturing the
business of millennial consumers who are constantly connected online.
Global Segment
With the global economy set to strengthen by 2019, the market for luxury goods is expected to grow
in the future (Euromonitor, 2015). Furthermore, strong income growth in many emerging countries is
shifting spending patterns to more discretionary spending with positive implications for luxury brands.
Altogether, luxury brands should focus on emerging markets for growth, but must not overlook the
developed markets that currently represent the largest spenders.
Physical Environment
Growing environmental concerns have put pressure on manufacturers to produce environmentally
friendly goods with minimal environmental impact. Furthermore, society is progressively looking to corporations
to improve the welfare of an increasing number of stakeholders. This may affect the market for luxury goods as
consumers begin to seek out those brands that emphasize an interest in social responsibility (Euromonitor, 2015).
Industry Environment
The luxury brands industry is highly competitive among the existing, well established firms, with
little exposure to consumer bargaining. However it is susceptible to supply pressure and knock-off products.
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Threat of New Entrants
While it may be relatively easy to manufacture similar products through the use of inexpensive labour
and materials using established textile factories in Asia or Africa (Passariello & Kapner, 2015), developing the
brand recognition possessed by Burberry and other luxury clothing companies will prove to be much more
difficult. The industry is dominated by old, very well established brands, like the 160 year old Burberry brand
(Burberry Group plc), the 178 year old Louis Vuitton brand (Louis Vuitton Canada, Inc.), the 103 year old
Prada brand (Prada Group , 2014), among some relatively newer, but also well-established ones including the
30 year old Dolce & Gabanna brand (Dolce&Gabbana ). Furthermore, Burberry ranks 73rd in Interbrand’s Best
Global Brands of 2015, again joined by many of its competitors on the list (Interbrand, 2015). Thus, it seems
that entering the luxury clothing brand market is quite difficult and requires an established brand, which often
takes many years to develop, making the threat of new entrants low.
Bargaining Power of Suppliers
Burberry does have significant vertical integration of its supply chain with much of the design,
manufacturing, sourcing, and selling done through the company’s operations (Burberry Group plc, 2015, p.
18). However, they are exposed to risk by having over-reliance on a few key vendors in manufacturing and
supply of raw materials (Burberry Group plc, 2015, pp. 56-59). The organization relies on specific raw
material producers of fabrics for each of its product types such as a special cotton yarn supplier in Peru, and
sources leather only from tanneries with a Leather Working Group Certification (Burberry Group plc). As a
result of relying on a few specialized suppliers, including a specific cotton farm in Peru, among other
specific raw materials producers, the bargaining power of Burberry’s suppliers is high.
Bargaining Power of Buyers
In the luxury brands market, companies must find the balancing point between a high enough price to
demonstrate the prestige of a luxury brand, and a price which is affordable for the target market. However, once
this price range is set, as it is for an established company like Burberry, customers will have little aversion to
the prices charged. Consumers who are wealthy enough to afford Burberry’s luxury products will be unwilling
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to push for lower prices in order to maintain the prestige and exclusiveness associated with the brand. Thus, the
bargaining power of buyers is also low, simply due to the fact that they have little desire to reduce prices.
Threat of Substitute Products
Despite having a well-established brand, and a recognition of quality, Burberry like “all [other]
popular brands and types of luxury manufacturers, [is] susceptible to counterfeiting,” (Lamb, 2010). As
previously outlined, it is all too easy today for someone to mass produce clothing items in Asia or Africa,
and use the Burberry brand to sell their counterfeit products. Not only will the counterfeiters retract sales
from the brand as a result of much lower prices, but they can also damage the brand itself (Lamb, 2010).
While the threat of substitutes for the luxury clothing itself is virtually nil, the threat of being substituted by
knock-off products is very high, especially for consumers that want to be able to demonstrate the prestige of
owning Burberry products, but are not quite able to afford it en masse.
Rivalry among Existing Competitors
The luxury brands market is intensely competitive and is split between several firms, with the top
twelve firms controlling over a third of the total market, and the top five firms taking a growing share of the
market over the past eight years. The LMVH group dominates the market with a 2013 market share of 10.5%,
towering above the luxury jeweler, Richemont, which follows with a 3.9% market share. Burberry takes the
11th spot (down from 10th the previous year) despite steady revenue growth year after year. This confirms that
the industry is highly competitive and Burberry must continuously grow to maintain their market share. Thus
the rivalry among existing competitors in the luxury brands market is high (Euromonitor, 2015).
Current Strategies
Business Level Strategy: Broad Differentiation
Burberry differentiates from its competitors through its iconic “British-style” brand design, use of
quality materials, and innovation. Burberry is recognized worldwide; however, due to the competitive nature
of the luxury goods market, the company needs to further differentiate itself by creating a clear company
vision. Burberry focuses on unifying all their sub-brands with one value by using this motto: “inspire with
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the brand”. With this, Burberry is trying to engage consumers through a homogenous message during
various marketing campaigns at runway shows, product launches, and on social media.
Corporate-Level Strategy: Market Penetration
As Burberry already has an established presence in China, Japan, and the Americas, they seek to
further increase sales in these regions by optimizing the retail chains and increasing customer service. Japan
accounts for 16% of sales growth in 2013 (Euromonitor, 2015), prompting Burberry to focus more on
increasing brand awareness and customer engagement in this region as it is perceived as a profitable market to
further penetrate. In North America, Burberry recently opened a flagship store in Los Angeles and refurbished
an existing store in San Francisco thus increasing its visibility for customers. Furthermore, Burberry is reducing
lead time between purchase and delivery in order to improve the customer’s experience.
Product-Development
Burberry is continuously developing new products across all categories including Women’s, Men’s,
Beauty, and Accessories. Presently, Burberry is focusing on enhancing the “underdeveloped” product
categories in 2014 and 2015 (Burberry, 2015). In the Beauty category, Burberry launched two new cosmetic
products in the last year: “Eye Statement” and “Fresh Glow BB Cream”. Burberry also recently launched a
new fragrance called “My Burberry”, which was their most successful fragrance to date. The goal of their
product development strategy is to offer more variety for existing customers.
Global
Burberry’s headquarters in London is central for most decision-making but the company’s
operations span across the globe. As of 2014, management is moving towards a more transnational approach
in communication to ensure that Burberry’s vision is shared across all of its locations. This is being
accomplished through “Chat Live” video broadcasts and a “fully open-environment plan” to exchange ideas
and information worldwide.
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Strategic Challenges
Gaining Control of Brand Identity
With products manufactured at both company-owned facilities in the UK and through an external
supplier network, a major challenge for Burberry is to maintain a consistent quality and brand image across
all of its products. In recent years this has been a significant problem due to multiple licensing agreements
which led to a broad product mix that confused consumers and undermined exclusivity (Euromonitor, 2015).
Burberry is attempting to gain greater control over its brand image by cutting back licensing and taking the
company’s beauty operations in house. Ultimately, Burberry must build around a unified image of luxury
and maintain a consistent consumer experience with the brand in all contexts in order to remain competitive
in the industry.
Strengthening Digital Presence
Given the pervasiveness of the Internet in today’s society, it is imperative that Burberry adjusts to
changing consumer lifestyles and to taking part in what is the fastest growing distribution channel for
consumer goods. Burberry must maintain its commitment to digital innovation and integration of digital and
traditional marketing and retailing in order to stay competitive with brands, such as LVMH, which are also
establishing a strong online presence. A strong position in digital media will also contribute to Burberry’s
ability to capture the millennial segment, which is exclusively connected through digital media.
Capturing the Millennial Segment
As millennials enter the workforce, the increase in their discretionary income creates opportunities
for Burberry and other luxury brands to capture additional business. The challenge for a well-established
brand like Burberry will be to provide goods that are both modern and at the same time adhere to the brand
image that is built around British heritage.
By addressing all of the above challenges, Burberry will be able to successfully compete in the
increasingly competitive market for luxury goods and enjoy sustained growth in the years to come.
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References
Burberry Group plc. (2015). Strategic Report. Retrieved from Burberry Group plx:
http://www.burberryplc.com/documents/ar-1415/burberry_strategic_report_2014-15.pdf
Burberry Group plc. (n.d.). Company History. Retrieved from Burberry:
http://www.burberryplc.com/about_burberry/company-history?WT.ac=Company+History
Burberry Group plc. (n.d.). Product Targets. Retrieved from Burberry:
http://www.burberryplc.com/corporate_responsibility/environmental_responsibility/product-targets
Dolce&Gabbana . (n.d.). Main Stages. Retrieved from Dolce & Gabbana :
http://www.dolcegabbana.com/corporate/en/history/main-stages.html
Euromonitor. (2015, February 10). The Rise of Luxury Spending and High Income Earners in Emerging
Markets. Euromonitor International.
Euromonitor. (2015, February 12). Luxury Goods in the US. Euromonitor International.
Euromonitor. (2015, June 4). Burberry Group Plc in Luxury Goods (World): Global Company Profile .
Euromonitor International.
Euromonitor. (2015, June 11). A Burgeoning “Grey” Market Takes Shine off Burberry’s Latest Results .
Euromonitor International.
Gockeln, L. (2014). Fashion industry analysis from the perspective of business model dynamics. Retrieved
from http://essay.utwente.nl/65268/1/Gockeln_BA_School%20of%20Management%
20and%20Governance.pdf
Interbrand. (2015). Rankings. Retrieved from Interbrand: http://interbrand.com/best-brands/best-global-
brands/2015/ranking/
Lamar, S. (2015). Political trends. Retrieved from https://www.wewear.org/politicaltrends/
Lamb, R. (2010, December 17). Countering counterfeits: How luxury brands are challenging the knock-off
culture. Retrieved from Luxury Daily: http://www.luxurydaily.com/piracy-and-counterfeit-an-
ongoing-battle-for-luxury-brands/
Louis Vuitton Canada, Inc. (n.d.). A Legendary History. Retrieved from Louis Vuitton:
http://ca.louisvuitton.com/eng-ca/la-maison/a-legendary-history
Passariello, C., & Kapner, S. (2015, July 12). Search for Ever Cheaper Garment Factories Leads to Africa.
Retrieved from The Wall Street Journal: http://www.wsj.com/articles/search-for-ever-cheaper-
garment-factories-leads-to-africa-1436347982
Prada Group . (2014). History. Retrieved from Prada Group: http://www.pradagroup.com/en/group/history
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