Luxury brand Burberry, famous for its Yorkshire-made trench coats, is to axe jobs and cut its product range by up to 20 per cent following a 10 per cent slide in annual profit.
The group hopes to make cost savings of £100m by overhauling its operations as it struggles to cope with a reduction in the number of Chinese tourists visiting its stores in Europe and weak demand in Hong Kong.
Burberry’s finance director Carol Fairweather said the cuts will result in a reduction in the group’s headcount, but said there were no plans to announce how many jobs will be lost for the time being.
“We will communicate with the teams first,” she said, adding that no decision has been made on whether the job cuts will be at head office or in stores.
It is unlikely that the skilled workers who stitch 5,000 heritage trench coats a week at Burberry’s factory in Castleford will be affected as their jobs are vital to Burberry’s success. Their stitching skills take a year to hone and Burberry is hoping to persuade its 800 workers in Castleford and Keighley, where the gabardine fabric is woven, to move to a new state-of-the-art manufacturing and weaving facility in Leeds.
Burberry is spending over £50m on the new facility, situated on the South Bank of Leeds, which will employ more than 1,000 people when it is completed in 2019.
The new site will offer increased capacity for trench coat production, more sustainable and efficient ways of manufacturing and the potential to produce other coats and outerwear.
Burberry chief creative and chief executive officer, Christopher Bailey, who was born in Halifax, said: “I am delighted that the next chapter of Burberry’s manufacturing story will be right here in Yorkshire.
“Burberry is a proudly British brand and we are so excited that our plan for a new site in South Bank, Leeds, means that we will continue to produce our most iconic product – the trench coat – in this wonderful part of the country for many years to come.”
Burberry said it expects tough market conditions to continue and that profit will come in towards the bottom of market forecasts in the year to March 2017.
The group said that after successfully relaunching its trench coat and scarves its next focus will be bags, a category which is growing faster than clothing and an area of weakness for Burberry compared with its peers.
It will also seek to improve its retail operations to lift sales online and through its stores, where analysts believe it underperforms its rivals. Areas of focus will include retail basics such as customer service, availability of products and in-store logistics.
“Our customers feel great about the brand,” said Ms Fairweather.
“We need to become a great luxury retailer. It’s a huge opportunity for us - to make sure the in-store experience is at that standard.”
Mr Bailey said: “While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to driver Burberry’s outperformance.”
The efficiency programme will cut the group’s operating costs by about 10 per cent excluding fixed rent and depreciation and deliver cost savings of at least £100m by 2019. Around £20m of savings will come through in the current year.
Burberry reported adjusted pre-tax profit of £421m for the year to end-March, broadly in line with analysts’ forecasts.
Revenue fell 1 per cent to £2.5bn.
The retailer makes around a third of its sales from the Asia Pacific region and has been hit hard as Chinese consumers have reined in their spending, particularly in Hong Kong, traditionally a prime shopping destination for Chinese consumers.
Mr Bailey added: “We continue to see significant opportunities ahead of us and have put ambitious plans in place to increase future revenue, enhance productivity and create a more efficient organisation.”
Burberry said it plans to simplify its product range and focus on key items, cutting around 15 to 20 per cent of its range this year and increasing cuts over subsequent years.
Steve Clayton, head of equity research at Hargreaves Lansdown, said: “The travelling Chinese luxury consumer is clearly still reluctant to come out and spend money at the moment, and as long as that remains the case, things are likely to remain tough for Burberry.
“There is a great brand at the heart of Burberry, but it needs stronger Chinese demand to shine. The reductions in longer term market growth expectations are disappointing, but reflect the new reality.