Burberry Business Model

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The Burberry Business ModelCreating an International Luxury Fashion Brand

https://us.burberry.com/

https://us.burberry.com/?selected=Y

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Introduction

• Such a profitable business, made a significant loss!

• A strategy which sacrificed management control over product

development and distribution in favor of seemingly indiscriminate

licensing agreements.

• Adoption of a business model that :

Maximised internal controls, with respect to product sourcing, brand

communications and distribution.

Cost management and resource utilisation efficiency.

Provision of a portfolio of distinctly positioned fashion brands.

Maximisation of internal control through the abandoning of licensing

agreements.

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Introduction

• The Burberry performance over the same period has been determined largely by the adoption of business

models which … ?

• Ending 31 March 1998, annual profits drop from £62m to £25m !

• Financial analysts describe it as “an outdated business with a fashion cachet of almost zero”!

-148%

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Introduction

• The re-alignment of Burberry’s business model :

Internal control over manufacturing and distribution;

The expansion of the product portfolio to

include a wider customer base;

Adoption of a multi-brand positioning;

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Introduction

This paper will :

1. Provide a review of the history of Burberry.

2. Evaluate Burberry’s re-positioning strategy.

3. Critically delineate Burberry’s current business model.

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Introduction

Burberry Chronology

Burberry Repositioning• Brand Management

• Product Design & Sourcing

• Brand Distribution

Burberry Business Model• Products

• Manufacturing & Sourcing

• Distribution Channels

• Marketing Communications

Conclusion

Headlines

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First Store’s Opening21-year-old Thomas Burberry

opens a small shop after working as a drapery apprentice.

GABARDINE Development

Gabardine, a breathable and weatherproof fabric, is developed and introduced.

Adopted By British OfficersAs the predecessor of the “Trench coat”, Tielocken, is adopted by the

British officers.

1856 1880 1900

http://www.tiki-toki.com/timeline

Burberry Chronology• The Past

http://www.tiki-toki.com/timeline/entry/147542/Burberry-A-History/#vars!date=1997-09-24_21:52:35!

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"PRORSUM"The equestrian knight trademark appears for the first time along

with the slogan "Prorsum" meaning forward.

The First International Store Opens

Burberry opens its first store in Paris located on

Boulevard Malesherbes.

BURBERRY Reaches JapanBurberry begins to sell their

merchandise in Japan in a wholesale agreement with Sanyo Shokai and the

giant trading company Mitsui.

1901 1910 1920




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Conglomeration with GUS

Change in ownership provided the funding for the expansion of

the Burberry retail network in the UK and the USA.

Japan Economy Downturn With an ever increasing reliance on Asia for sales, the sharp downturn

in the Japanese economy has a significant effect upon Burberry’s

performance.

Profits DroppingAnnual profits dropped

from £62m to £25mand GUS was advised to

sell-off Burberry!

1955 1990 1997

BurberryGUS




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Burberry Chronology• Nowadays

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BURBERRY ANNUAL REPORT 2014,15

BURBERRY 2014,15 ANNUAL REVIEW INTERACTIVE


Click Below to Show the DOC

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BURBERRY…LOST …

…!?


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• Burberry key strategic challenges that faced their business in 1997 :

1. Heavy reliance upon a small base of core products.

2. Retail network based within non-strategic locations.

3. Inconsistent wholesale and retailing distribution strategies.

4. Parallel trading of legitimate wholesalers to other non approved distributors.

5. Poorly controlled licensing strategy.

6. under-investment in corporate infrastructures.

Burberry Chronology• Rolling Back

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• In 1997 the brand was available in more than 60

different stores in central London but was not

stocked by the capital’s most prestigious retailers

such as Selfridges, Harvey Nichols or Harrods!


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• GUS appointed Rose Marie Bravo as the new CEO.

• She had previously been president of Saks, New

York’s fashionable department store in Fifth

Avenue.

• New management team was assembled.


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Radically repositioning :

• The primary asset, the Burberry brand, was undermined by a moribund image.

• Overly reliant upon a narrow customer base comprising of middle aged, fashion-conservative men.

• Inadequate control over product design and distribution arising as a result of indiscriminate licensing

and distribution agreements.


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New strategy, re-position the Burberry’s brand as a :

• Distinctive luxury brand with a clear design, merchandising, marketing and distribution strategy.

• Which would be appealing to new, younger, fashion-forward customers.

• While still retaining the traditional customer base.


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Management undertook a range of initiatives intended to :

• update the firm's brand image.

• Re-configure the distribution network.

• Assert fuller and more comprehensive control over product

development, sourcing and distribution both domestically and

internationally


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• Make a platform for the development of a revised business model,

described as “the positioning of the Burberry brand”.

• These are concerned with new approaches to:

1. Brand management.

2. Product design and Sourcing.

3. Brand Distribution.


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Launched a radically different advertising strategy. (change perceptions of Burberry)

• use of leading models,

• reputable fashion photographers,

• retaining distinctly British themes as the content of these advertisements.


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Launched a radically different advertising strategy. (change perceptions of Burberry)

• flagship store on New Bond Street in London.

• attracting the attention of the international fashion press and other media.

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• Bogart sues Burberry …!

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• Burberry distanced itself from Moss in September

2005, days after The “Daily Mirror” scandal.

• Burberry stressed in November that it had not severed

ties with the model.

• A year later she got back with Burberry.


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He joined Burberry in May 2001 as design director and became Creative Director in 2004, and Chief Creative Officer in November 2009.

• Try to upgrade the range to ensure that more clearly

reflected the updated lifestyle positioning of the company.

• Restructured its sourcing and pricing.

• Eliminated unnecessary product variation.

Burberry Repositioning• Products Design & Sourcing

https://en.wikipedia.org/wiki/Burberry

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PRORSUM Launching …

Burberry Repositioning• Products Design & Sourcing

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All unprofitable and non-core retailer stores in Europe were closed.

Repositioning needed more control where and how the brand was distributed within the UK and internationally.

Distribution policy should support the repositioning So….

working with wholesalers with inappropriate stockiest were Discontinued.

The company bought back the distribution rights within Hong Kong , Singapore , Australian in 2001.

Burberry Repositioning• Brand Distribution

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Introduction

Burberry Chronology


• Product Design & Sourcing

• Brand Distribution


• Manufacturing & Sourcing

• Distribution Channels

• Marketing Communications

Conclusion

Headlines

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Burberry Business Model

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Table III Turnover analysis by distribution channel

Burberry Business Model• Distribution channels

Sales (m£) Share Sales (m£) ShareRetail 156.9 31% 228.4 38% 46%

Wholesale 288.8 58% 306.9 52% 6%License 53.5 11% 58.3 10% 9%Total 499.2 100% 593.6 100% 19%

2002 2003Year Growth

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Table III Turnover analysis by distribution channel


Total 2002 Retail Wholesale License Total 2003400

420

440

460

480

500

520

540

560

580

600

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

499

72

185

59446%

6%9%

Sale

s (m

£)

Grow

th (P

erce

ntag

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Group Financial Review 2015 TC Revenue : £ 2.523 M

Retail Revenue : £ 1.807 M

Year end net cash : £ 552 M

Adjusted EBIT: £ 456 M

EPS : 76.9 p

Dividend Per Share : 35.2 p


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Products

Manufacturing and sourcing

Distribution channels

Marketing communications


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Burberry Business Model• Products Regional Mix

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Product Mix

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Policy:

• Full Control Over The Development, Sourcing & Manufacturing

• Brand Control/Regular contact

• Creative Direction (Prorsum)

Burberry Business Model• Manufacturing and Sourcing

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• Own Fabric Weaving Operation(Burberry London collections)

• Limited Number Of European Supplier (Prorsum)

• Raw Materials: Directly Purchases or Approved

• Achievement: Control Core product Category ,Rainwear )


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• Castleford(England), Wales ,New Jersey (rainwear, outerwear)

• Finished Goods For Prorsum, European suppliers QC Managing Internally

• Moroccan Manufacturers(Thomas Burberry)

• Other European Suppliers

• QC Outsourced Third-Party Specialist


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Limited Licenses “brand-enhancing products”

Principal Product Categories:

• Fragrance, InterParfums “Burberry London”

• Eyewear,Safilo Italian manufacturer

• Childrenswear CWF, specialist manufacturer

Achievement : Response To Changing Customer Tastes and demands


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• Mitsui, Textiles Manufacture

• Sanyo, Designer, Producer & Wholesaler

• Royalty Payments

• 18 Japanese Firms Hold Licenses

• Advertising & Marketing Achievement: Local Expertise ,Knowledge & commitment


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el • Warehousing & Logistics in-house, Northumberland

• Reducing Costs & Improving Delivery Times(USA-Asia Pacific)

• Plans To Extend Service To Major Wholesale Customers

Achievement: Managing Global Supply Chain


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Distribution channels• Retail distribution• Wholesale• license


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Distinct formats of Burberry retail chain :

• operation of company-owned stores

• company-controlled wholesale arrangements

• license agreements with partner firms in Japan


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Four distinct formats of Burberry retail chain :

1. Burberry London ranges : Serving as a showcase to the fashion media

and potential wholesale stockists.

2. New York and Chicago stock : wider range of rainwear ,has a greater

emphasis upon lighter weight products.

3. Korea, Japan and Spain : department stores are the dominant

distribution method for premium priced fashion in important

markets.

4. Outlet & factory stores in the UK, USA and Spain : 1. Discount prices

2. these sell products with minor imperfections & products

manufactured from surplus fabrics.


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Wholesale stockists include :• Prestigious department stores• Specialty fashion retailers• Duty-free retailers

Burberry’s wholesale stockists in 2002 was in excess of 3,100.

United State of America 17%Spain & Portugal 40%Europe & remainder in Asia 37%


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The Burberry distribution channels model

Full Product:

Range

Retail distributions Wholesale Distribution License Distributions(Japan Only)

Flagship store Flagship store

Regular PriceRetail Store Department Store Burberry Blue/Black

Stores

Department StoresConcessions

Specialty FashionStore

Department StoresConcessions

LimitedProductrange

Designer OutletsFactory Store Specialty Fashion

Store


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• identify the importance of active marketing communications in the development of an image and lifestyle that is capable of “generating interest among retail customers, wholesale buyers and the media” .

Burberry Business Model• Marketing communications

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Three ways of the Burberry communications model1. Advertising

2. Fashion shows

3. Editorial placement


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1.Advertising

• Launched on a twice-yearly basis to coincide with the delivery of the seasonal collections to their

retail stores and stockiest

• The production and media costs associated with the advertisements represent a significant

proportion of the firm’s advertising expenditure.

• All advertising campaigns in Japan require central marketing department approval


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2.Fashion shows

• Burberry views fashion shows as an important element in their marketing plan since these serve to underline the

luxury status of the brand.

• Furthermore, the shows establish and reinforce the fashion credibility of the brand and generate international press

coverage.

• The shows for the men’s and woman’s Burberry Prorsum are held twice-yearly in Milan.

• This decision to show in Milan recognizes the importance of the city as the global center of luxury fashion and serves

to maximize fashion media coverage internationally.

• The Burberry London line is shown at London Fashion Week each season in the London showrooms.


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• Burberry has adopted a proactive public relations strategy aimed at the fashion and trade press.

• This strategy aims to maximize world-wide editorial coverage

• comment in support of the Burberry brand

• to ensure frequent product placement in the leading fashion, business, trade and newspaper publications.

• In addition, the company provides a brochure each season containing the current collection for wholesale account

customers and operates an information-only Web site which includes information on the history of the company,

images of current advertising campaigns and shareholder information

3.Editorial placement


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Important considerations of Burberry’s marketing communications

• it recognizes the importance of advertising in the creation of a luxury brand image and lifestyle association

• it is clear that fashion shows and associated events are crucial to the achievement of international media coverage

• a proactive media management strategy is crucial for the achievement of adequate editorial coverage and the

development of a credible international brand profile and standing


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The Burberry marketing communications model In Bird’s Eye view


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• The re-positioning and subsequent renaissance of the Burberry brand provides invaluable insights into the machinery of the luxury fashion brand business model.

• The value of this analysis lies in the access that it gives to the location of those factors that contribute to the success of an international luxury fashion brand.

Conclusion

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The Burberry model identifies five key success factors:1. The importance of a clearly defined brand positioning which communicates a definite set of attractive brand values and lifestyle associations.

2. The requirement to maintain a coordinated distribution strategy whereby retail chains

compliment and are complimented by wholesale chains which assure maximum market coverage.

3. The opportunities afforded by a strong brand identity to extend into adjacent product areas either through internal capability or via licensing

agreements.

4. The opportunities afforded by a flexible approach to the management of important foreign markets – such as in the form of delegating marketing

activity through licensing agreements.

5. The importance of media relations management to the creation and maintenance of a credible luxury fashion brand reputation.

Conclusion

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Finally, through an in-depth analysis of the Burberry business model, this paper has

sought to encourage further interest and debate with respect to the mechanics of

generating an internationally successful luxury fashion brand.

Conclusion

Burberry Business Model

Business

Transcript of Burberry Business Model