Burberry sales fall 35% in China on back of Covid lockdowns

Burberry has reported sales growth of only 1% in its latest financial quarter because of the impact of Covid-19 lockdowns in China, while sales were boosted elsewhere by its Lola handbag range and signature trenchcoat.

The luxury fashion retailer said sales fell 35% in mainland China because of restrictions and store closures to contain the latest outbreak of the coronavirus, while sales grew 16% across the rest of the world in the 13 weeks to 2 July.

The company reported the strongest growth in Europe, Middle East, India and Africa (EMEIA), with sales up 47% year on year with spending levels back above pre-pandemic levels, as sales to American tourists also bounced back strongly.

The company said sales to Asian tourists, especially Chinese, remained weak, and trade in the UK was not as strong as Europe after tax-free shopping for non-EU visitors was axed in 2020 as part of Brexit.

Julie Brown, the chief operating and financial officer of Burberry, said the majority of sales in Europe were now to locals as the number of Chinese tourists visiting its stores were down 90%.

“There is a tendency for consumers to go to mainland Europe rather than the UK. We would like to see more support to drive recovery in UK tourism,” she said, adding that the ability to claim a VAT refund could be a “key driver of tourism”.

Sales of leather goods, led by its Lola handbag range, grew by 21% outside mainland China, while outerwear, driven by rainwear and jackets, grew by 19%.

Burberry warned of uncertainty regarding the economic outlook in the short-term and said that the company was “actively managing” the impact of soaring inflation, which in the UK has hit a 40-year high of 9.1% and is heading higher.

Overall, the company reported a 1% year-on-year increase in comparable store sales to £500m.

Shares fell 5% in early trading on Friday, making Burberry the biggest faller on the FTSE 100.

“In theory, luxury goods retailers should be bombproof from inflationary and even recessionary environments, with the profile of the consumer at the top end being insulated from the economic constraints of many others,” said Richard Hunter, the head of markets at Interactive Investor. “However, the closure of shop windows in key regions and the lack of a full return of the Asian tourist still remain headwinds.”

Burberry said that it continued to invest and innovate, including launching a campaign for the Lola range featuring models such as Bella Hadid and creating a virtual collection on the online gaming platform Roblox.

Other initiatives included a seasonal campaign for its TB Summer Monogram collection, featuring Gisele Bündchen, and signing the South Korean Premier League footballer Son Heung-min, who plays for Tottenham Hotspur, as a brand ambassador. The announcement of the signing on Instagram fuelled record engagement for Burberry, up more than a fifth on the company’s previous most popular post.

“Our performance in the quarter continued to be impacted by lockdowns in mainland China but I was pleased to see our more localised approach drive recovery in EMEIA, where spending by local clients was above pre-pandemic levels,” said Jonathan Akeroyd, the chief executive at Burberry. “Our focus categories, leather goods and outerwear continued to perform well outside mainland China and our programme of brand activations boosted customer engagement.”