|Why Brand Is Key To Burberry's Future
Recent talk that Burberry was, for a while at least, a potential takeover target, raises an important discussion about how vulnerable a business is to acquisition and what it can do to address that. In Burberry’s case, the vulnerability comes from a decline in market capitalization driven by a drop in its share price.
Burberry’s finances have been impacted by a slower than expected performance in one of its key markets, China – which is not an issue exclusive to this British founded global luxury giant. It also fails to ignore the real strength of Burberry’s business: its brand.
Millward Brown’s BrandZ data validates that strong brands help to generate a price premium, increase sales volumes and contribute more to shareholder value creation than any other tangible or intangible asset. In fact, for many of the stock market’s leading performers, it is the “brand” that drives their market success.
In Millward Brown’s 2015 BrandZ Top100 report on the Most Valuable Luxury Brands, Burberry’s brand value was $5.7 billion. That’s huge. So although Burberry’s value declined last year alongside most other luxury brands struggling with a dip in purchases by Russian and Chinese shoppers and a harmonization of prices across the world, over the last five years it actually grew—by as much as 71%, which is almost twice the pace of the category brand-value growth.
Brand, perhaps unsurprisingly, is the one of the most important controllable assets in the arsenal of a luxury business and this is particularly true for Burberry. It might not be as famous as some of the world’s biggest luxury brand groups like LVMH, but Burberry does have a strong, aspirational and distinctive brand (and a strong emotional connection with consumers which will encourage them to continue to buy the brand). This is something that Burberry needs to leverage for the future growth potential of the business.
It will also need to be careful that key business decisions to improve profit margins or response to the fast fashion set don’t damage the brand. For example, its decision to eliminate the customary six-month waiting period before consumers can buy the latest designs is very likely to clash with the concept of handcrafted luxury that is central to the premium pillars of a brand like Burberry, which is already starting to show a slight slip in trust by consumers.
As consumers question the price that they pay for “luxury” more than ever, Burberry needs to be true to the brand that consumers respect, trust and admire. To do this it will need to fully understand and then manage its brand to steer the business into sustainable growth and protect it from future takeovers.
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This article originally appeared on Forbes.com. You'll find a link to the original after the post.
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