8 Burberry
8 Burberry
8 Burberry
improvements in its business performance international store was opened in Paris at the
(Menkes, 2002). Boulevard Malesherbes. Indirect foreign market
The re-alignment of Burberry’s business model, participation was instigated in the early 1900s
with its partial public share offering; a preference when Thomas Burberry began to supply retail
for internal control over manufacturing and stockists in New York, Buenos Aires and
distribution; the expansion of the product Montevideo. In 1920 Burberry entered into
portfolio to include a wider customer base and the wholesale agreements with Japanese retailers. The
adoption of a multi-brand positioning, reflect firm’s relationship with the Japanese market was
many of the developments that have occurred further developed when Mitsui were appointed
within other premium international fashion retail distributor of their outerwear products in Japan in
companies. These include firms such as Gucci, 1964 and then as their licensee in 1980 alongside
Ralph Lauren and Prada (Moore and Fernie, the Sanyo Company (Adams, 1995; Sherwood,
2004). As such, an in-depth analysis of the 1998, Burberry, 2002).
Burberry business model, as is proposed here, Acquired by the British retail and catalogue
serves to reflect at the micro-level, many of the conglomerate, Great Universal Stores (GUS) in
corporate trends and management issues that 1955, this change in ownership provided the
currently pre-occupy the international luxury funding for the expansion of the Burberry retail
fashion retailing sector. network in the UK and the USA. In addition,
Drawing from extensive documentation that licences were granted to a variety of third parties in
was published by Burberry in support of their Europe and Asia to facilitate the expansion of the
initial public offering (IPO), in summer 2002 and Burberry product range and increase foreign
from other sources, such as market analysts and market distribution (Cowe, 1997). With an ever-
investment brokers’ reports, this paper will: increasing reliance upon Asia for sales, the sharp
. provide a review of the history of Burberry; downturn in the Japanese economy had a
.
evaluate Burberry’s re-positioning strategy as significant effect upon Burberry’s performance in
defined by the firm in their IPO prospectus; the mid-1990s. By 1997 the vulnerability of
and Burberry’s strategy became all too evident when
.
critically delineate Burberry’s current business their annual profits dropped from £62m to £25m
model. and GUS was advised to sell-off Burberry but to
expect no more than £200m for the business
(Finch and May, 1998; Roberts, 1998).
A chronology of Burberry In their IPO prospectus, published in spring
2002, Burberry identified the key strategic
Thomas Burberry founded Burberry in 1856 in
challenges that faced their business in 1997 as
Basingstoke, England when he opened a store
follows:
selling men’s outerwear. The reputation of the .
a heavy reliance upon a small base of core
company was enhanced through Burberry’s
products;
development of “gabardine”, a fabric that was .
a company-owned retail network based within
resistant to tearing; was weatherproof but was also
non-strategic locations;
breathable (Burberry, 2002). This new fabric was .
an inconsistent wholesale distribution strategy
especially suited to military needs and led
with Burberry products being sold in a wide-
Burberry to design an army officer’s raincoat
range of retail environments of varying
which became an integral element of the standard
quality;
service uniform for British officers in the early .
parallel trading of Burberry products by
1900s. During the First World War, Burberry
legitimate wholesale customers to other non-
continued to develop the officer’s raincoat by
approved distributors and stockists;
adding functional dimensions such as epaulettes, .
a poorly controlled licensing strategy which
straps and D-rings. Named the “Trench coat” as a
resulted in inconsistencies in prices, design
result of its military associations, the company
and quality control across markets; and
developed its now distinctive Burberry check as a .
under-investment in corporate
lining for the product. Inevitably, as a result of its
infrastructures, specifically in relation to
military associations, Burberry outerwear was
marketing, merchandising, product
readily adopted by leading explorers, such as
development and other support functions.
Captain Scott and Sir Earnest Shackleton who
wore Burberry gabardine on their Antarctic The extent of Burberry’s problems are typified by
expeditions. the fact that in 1997 the brand was available in
In tandem with these developments, Burberry more than 60 different stores in central London
developed a retail and wholesale business. The first but was not stocked by the capital’s most
London store opened in 1891 and by 1910 the first prestigious retailers such as Selfridges,
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womenswear spring/summer ranges now include The Burberry brand also incorporates the firm’s
swimwear, as well as complimentary accessories, accessories range, which with a sales value in 2003
such as shoes, towels and bags for the beach. of £58.3m, has emerged as a highly significant part
Likewise, the men’s collection has been extended of their business. Handbags represent the largest
to include sportswear, swimwear and a ski accessories product category by turnover. Scarves,
collection. shoes and other leather goods are also included in
Reflecting what the company describes as the accessories category.
“historical as well as market specific reasons” two In addition, and manufactured under licence
separate Burberry London lines are designed for (the detail of which is presented below), are four
the Spanish and Japanese markets. Both markets other important product categories comprising of
make significant contributions to Burberry fragrance, eyewear, timepieces, and childrenswear.
turnover. For example, in 2002/2003, 40 per cent All are marketed under the Burberry brand name.
of Burberry’s wholesale customers were from As such, it is possible to classify the Burberry
product/brand model in terms of a pyramid as
Spain or Portugal, while the Spanish department
illustrated in Figure 1.
store chain, El Cortes Ingles, was Burberry’s
From the Burberry Prorsum brand, at the
largest wholesale customer. Until 2000, Burberry
highest tip in the pyramid, to the Burberry
goods sold in Spain were manufactured by a
Accessories collections, at the lowest, the company
Spanish licensee. As part of their strategy of
has secured three important dimensions in its
achieving greater control over product design and product model. First, the multi-brand approach
manufacture, Burberry bought back the licence provides the company with maximum market
from the Spanish partner, but retained the policy coverage and broad customer appeal. Second, the
of producing Burberry London ranges that are model provides for flexibility and market
specific to the Spanish market. In Japan, Burberry responsiveness as is evidence by the country-
re-negotiated the terms of its licence agreement to specific Burberry Blue and Black brands. Third,
provide for greater control over the design of the the broad coverage of product categories and
goods distributed in Japan, but continued to allow differential price positioning among the brands,
these to be distributed under the Burberry London provides a comprehensive lifestyle offer that also
brand name. enables customers to access, as well as trade-up
The tailored Burberry London range for the (and down) between the various brand levels.
Spanish market is described by the company as
being “more diverse with a strong classic element.
We have in recent years increased the fashion 2. Manufacturing and sourcing
content and improved the quality of fabric and Integral to the re-positioning of Burberry in the
other materials used in these products” (Burberry late 1990s was the company’s determination to
IPO Prospectus, 2002, p. 26). Likewise, the line ensure that it maintained full control over the
developed for the Japanese market is described as development, sourcing and manufacturing of the
being classic in style and is adapted to suit the various collections. The design director,
Christopher Bailey, is responsible for the design of
seasonality and fit requirements of Japanese
the Burberry Prorsum collection, while his
consumers.
London-based design team is responsible for the
The Thomas Burberry range is one of three
design of the Burberry London range. This team
diffusion brands. This is targeted towards the
also oversee the design direction of other Burberry
younger age 15-25 year old customer group.
brand lines and ranges. For example, local design
Initially sold exclusively in Spain from 1997 and
teams in Spain and Japan are in regular contact
Portugal from 2002, the availability of the
with their London counterparts in order to ensure
collection has been extended to the UK and that all variations of the Burberry London brands
Europe. With its emphasis upon casual fashion are presented in a coherent and consistent manner.
and its newly modernised brand logo, the range is The company claims that the Burberry Prorsum
differentiated from the Burberry London brand collection provides creative direction for all of the
(according to the company), by its design, Burberry brands in that all of the various design
marketing, distribution and pricing. teams look to it for inspiration and direction
The Burberry Blue and Burberry Black brands (Burberry IPO Prospectus, 2002).
are the two other diffusion lines that are sold Assuming a manufacturing and sourcing
exclusively within Japan. The former, introduced scheme, comprising of fabric procurement and
in 1996, is a casual collection for younger women, pre-production, product manufacturing, and
while the latter brand is targeted at the younger warehousing and logistics, it is possible to
professional male and is comprised of tailored delineate Burberry’s management of the scheme as
clothing and sportswear. follows.
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Christopher M. Moore and Grete Birtwistle Volume 32 · Number 8 · 2004 · 412-422
In terms of fabric procurement and pre- specialist expertise. The principal product
production, the company utilises its own fabric categories are as follows. Fragrance, which is
weaving operation to supply linings and fabrics for manufactured by InterParfums S.A., and is
the Burberry London collections. Fabrics for the marketed as “Burberry London”, “Burberry
Burberry Prorsum and Burberry London Weekend”, “Burberry Touch”, “Burberry Brit”
collections are sourced primarily from a limited and “Burberry Baby Touch”. The Burberry
number of European suppliers. Initial fabric orders Eyewear collection, launched in 1997, is produced
are based on sales forecasts to ensure product in collaboration with Safilo S.p.A, a leading Italian
availability, and further purchases are based upon manufacturer and distributor. The Burberry
the extrapolation of early orders received (Burberry Timepieces collection was launched in 2001 in
IPO Prospectus, 2002). The company purchases collaboration with Fossil, the watch manufacturer.
directly, or retains full control over the purchase by Finally, childrenswear is produced by CWF, a
third-party manufacturers, of all raw materials that specialist manufacturer of children’s clothing
bear the Burberry name or other Burberry trade (Mitsui and Sanyo hold the licence to produce
marks (Burberry IPO Prospectus, 2002).
Burberry the children’s range in Japan).
Product manufacturing is secured through a
In Japan, the design, manufacture and
mix of internal and external capability. Internal
distribution of Burberry products is managed
manufacturing facilities based in Castleford
under a series of licence agreements with selected
(England), Treorchy (Wales) and New Jersey
third parties. The two major licence partners are
(USA), produce rainwear, outerwear and polo
Mitsui, Japan’s largest general trading company,
shirts for the Burberry London collections.
which has acknowledged expertise in textiles, and
Finished goods for the Burberry Prorsum, and
other elements of the Burberry London collections Sanyo, a major designer, producer and wholesaler
are obtained from European suppliers. Quality of apparel. Both licensees are exclusively
control for the Burberry Prorsum and Burberry responsible for the design and manufacture of the
London collections is managed internally. Burberry London collections, as well as the
Finished goods for the Thomas Burberry childrenswear and Burberry Golf collections.
diffusion brand are supplied principally by Royalties are paid to Burberry by both licensees on
Moroccan manufacturers, although goods are also a monthly basis. These are calculated on the
obtained from other European suppliers. Burberry volume of goods produced and their
has outsourced the quality control management of recommended retail value. Provisions are also
the Thomas Burberry collection to a third-party made to ensure that any exchange rate fluctuations
specialist. are not prejudicial to Burberry. As part of the
Burberry also grants a limited number of licensing agreement, both parties must achieve
licences to those firms capable of producing minimum monthly advertising and marketing
“brand-enhancing products”, which require targets.
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Christopher M. Moore and Grete Birtwistle Volume 32 · Number 8 · 2004 · 412-422
A total of 18 other firms in Japan hold licences manufacturing in Japan serves to integrate the
to produce ranges other than those manufactured local expertise, knowledge and commitment of
by Mitsui and Sanyo. Both firms are responsible established and reputable local organisations.
for the management and monitoring of these sub- Furthermore, their use of this near-to-market
licensees and in exchange, they receive 20 per cent capability eliminates the problems associated with
of the royalties received by Burberry from these managing a global supply chain within a very
other 18 licence partners. significant profit-generating market.
A significant proportion of warehousing and
logistics activity at Burberry is managed in-house. 3. Distribution channels
Warehousing for the wholesale side of the business The distribution of the various Burberry brands is
is company-owed and located in Northumberland, achieved through the operation of company-
England. There are three further warehouses in owned stores, by company-controlled wholesale
the UK, while the company operates two others in arrangements with third-party stockists, as well as
New Jersey, USA and in Hong Kong. Through the through licence agreements with partner firms in
acquisition of their Spanish licensee, Burberry Japan. The turnover by distribution channel
obtained two further warehouses in Barcelona. As method is illustrated in Table III.
a means of reducing goods handling costs and Burberry markets two clothing collections each
improving delivery times, the company has piloted year for spring/summer and autumn/winter. Initial
the direct shipment of products from suppliers to orders from wholesale customers are received for
wholesale customers in the USA and Asia Pacific. spring/summer ranges in the previous June to
The company plans to extend this service to major September, while orders for the autumn/winter
wholesale customers. All parts of the Burberry season are received by March at the latest.
operation utilise external logistics companies for
the distribution and delivery of finished goods. Retail distribution
Figure 2 represents Burberry’s manufacturing and The Burberry retail chain is comprised of four
sourcing model. distinct formats. Located within the primary
Three important observations can be made with shopping locations in Burberry’s most important
respect to Burberry’s approach to manufacturing national markets, flagship stores are located in
and sourcing. First, through the retention of
internal weaving and manufacturing capability, the Table III Turnover analysis by distribution channel
company has retained control over the creation of Turnover by channel 2002 (£m) 2003 (£m)
rainwear, their core product category. Second,
Retail 156.9 228.4
through the use of third-party manufacturers and
Wholesale 288.8 306.9
licensees, external expertise is brought to the
Licence 53.5 58.3
collections and with it, an ability to be flexible and
Total 499.2 593.6
responsive to changing customer tastes and
Source: Burberry (2003)
demands. Third, their exclusive use of licensed
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Christopher M. Moore and Grete Birtwistle Volume 32 · Number 8 · 2004 · 412-422
London, New York, Barcelona and Tokyo (the directly to wholesale stockists. Through the
Tokyo store is owned by their Japanese licensee). showrooms and agents, Burberry claims to work
These stores, with a minimum 10,000 square feet with wholesale customers on an individual store
of selling space, stock the full Burberry Prorsum basis in order to select appropriate products and
and Burberry London ranges, alongside the volumes in order to maximise the sale of products
various accessory collections. Serving as a at full price. In addition, the company works with
showcase to the fashion media and potential major stockists to ensure consistent visual
wholesale stockists, the stores serve as an merchandising and store presentation of the
important role in communicating the exclusive Burberry brand. A shop-in-shop format, based
positioning of the Burberry brand. upon the Bond Street flagship design has been
Described as regular price retail stores by developed and is implemented in department
Burberry, the company operates more than 30 of stores. Wholesale customers typically have access
these outlets across Europe, the USA and Asia. to the entire Burberry brand offer, other than the
Often operated within capital cities, and always Burberry Prorsum brand.
within affluent locations, these stores offer a As part of their development of long-terms
product mix that is broadly similar, but relationships with wholesale customers, the
merchandise is tailored to suit local climates and company also engages in collaborative marketing
local variations. For example, the Burberry stores activity with important clients. Burberry provides
in New York and Chicago stock a wider range of co-operative allowances whereby wholesale
rainwear compared to the Beverly Hills store, stockists receive a benefit towards advertising
which has a greater emphasis upon lighter weight Burberry products (Burberry IPO Prospectus,
products. 2002).
A third retail format is that of department store
concessions, of which there were more than 50 in Licensee distribution
2003. In view of the fact that department stores are Sanyo own and operate the Burberry flagship store
the dominant distribution method for premium in Tokyo that stocks the full range of Burberry
priced fashion in important markets, such as brands, including Burberry Prorsum. Sanyo also
Korea, Japan and Spain, these concessions enable operate two Burberry Blue and one Burberry Black
Burberry to access, in a cost-efficient manner, a stores. The two licence partners are jointly
wide and relevant customer base. In so doing, the responsible for the wholesale distribution of the
associated risks and costs of operating a large Burberry ranges to department stores and
number of company-owned stores can be avoided. speciality stores across Japan. As part of their
Unlike the regular price retail stores, these responsibility as licensees, both firms provide
concessions offer an edited version of the Burberry product, visual merchandising and sales staff to
London/Thomas Burberry ranges. their department store customers. Based upon the
Finally, Burberry also operates nine designer three distinct strands, the Burberry distribution
outlet stores and three factory stores in the UK, model is presented in Figure 3.
USA and Spain. These stores sell surplus stock at As Figure 3 illustrates, Burberry’s model of
discounted prices from the retail stores and the channel distribution provides the company with a
wholesale side of the business. In addition, these variety of advantages. The maintenance of a
sell products with minor imperfections, as well as company-owned chain of retail stores, while costly
products manufactured from surplus fabrics. to establish and maintain, provides maximum
control over the presentation of the Burberry
Wholesale distribution brand within significant and important markets.
The retail network is complimented by an Furthermore, this approach allows for maximum
extensive wholesale distribution network. The return on investment in that none of the profit is
number of outlets (classified as doors), operated by lost in having to pay for franchise partners and the
Burberry’s wholesale stockists in 2002 was in like. Through the implementation of an allocation
excess of 3,100. Of these, 17 per cent were in the formula which confines the risk of a full
USA, 40 per cent in Spain and Portugal, 37 per merchandise offer to flagship stores and allows for
cent in the rest of Europe, and the remainder in the dispersal of excess stock through its own
Asia and elsewhere. factory outlets, Burberry efficiently and effectively
Wholesale stockists include prestigious maintains the exclusivity and integrity of the brand
department stores, speciality fashion retailers and standing of each of their brands.
duty-free retailers. To serve their wholesale Their development of a comprehensive, yet
accounts customers, Burberry operates restrained network of wholesale stockists world-
showrooms in London, New York, Milan, wide provides for maximum market coverage at
Düsseldorf, Barcelona and Hong Kong. In other minimal cost and reduced risk. A symbiotic
markets, it employs agents who sell their range relationship exists between both the retail and
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Christopher M. Moore and Grete Birtwistle Volume 32 · Number 8 · 2004 · 412-422
wholesale channels in that the retail stores provide present a mix of products that present the overall
an impetus for media and consumer interest in the brand image and which demonstrate the extent of
Burberry brand within the respective markets the product range.
which precipitate wholesale sales, while the profits In relation to advertising within the Japanese
from wholesaling ensure that flagship stores are market, both Mitsui and Sanyo manage their local
economically viable. advertising campaigns directly using the images
and campaigns generated by the London
marketing team. All advertising campaigns in
4. Marketing communications Japan require central marketing department
In their IPO Prospectus (2002), Burberry clearly
approval.
identify the importance of active marketing
communications in the development of an image Fashion shows
and lifestyle that is capable of “generating interest Burberry views fashion shows as an important
among retail customers, wholesale buyers and the element in their marketing plan since these serve to
media” (p. 34). In order to generate and sustain a underline the luxury status of the brand.
coherent brand identity, all Burberry marketing Furthermore, the shows establish and reinforce the
activities are managed from London. Any local fashion credibility of the brand and generate
form of marketing communication and activity are international press coverage. The shows for the
determined by the direction provided by the men’s and woman’s Burberry Prorsum are held
London marketing team. There are three core twice-yearly in Milan. This decision to show in
strands to the Burberry communications model: Milan recognises the importance of the city as the
(1) Advertising. global centre of luxury fashion and serves to
(2) Fashion shows. maximise fashion media coverage internationally.
(3) Editorial placement. The Burberry London line is shown at London
Fashion Week each season in the London
Advertising showrooms.
Launched on a twice-yearly basis to coincide with
the delivery of the seasonal collections to their Editorial placement
retail stores and stockists, the Burberry advertising In order to create brand awareness, as well as
campaigns are focused upon the leading fashion establish and reinforce a luxury positioning,
and lifestyle publications. The production and Burberry has adopted a proactive public relations
media costs associated with the advertisements strategy aimed at the fashion and trade press. This
represent a significant proportion of the firm’s strategy aims to maximise world-wide editorial
advertising expenditure. With a particular and coverage and comment in support of the Burberry
strong focus upon iconoclastic British images, brand and to ensure frequent product placement
these advertisements draw heavily from the firm’s in the leading fashion, business, trade and
heritage and history. With an emphasis upon key newspaper publications.
products and the trade marks, the campaigns do In addition, the company provides a brochure
not feature individual products, but instead each season containing the current collection for
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Christopher M. Moore and Grete Birtwistle Volume 32 · Number 8 · 2004 · 412-422
wholesale account customers and operates an (3) The opportunities afforded by a strong brand
information-only Web site which includes identity to extend into adjacent product areas
information on the history of the company, images either through internal capability or via
of current advertising campaigns and shareholder licensing agreements.
information. The core elements of Burberry’s (4) The opportunities afforded by a flexible
marketing communications model are presented in approach to the management of important
Figure 4. foreign markets – such as in the form of
Burberry’s approach to marketing delegating marketing activity through
communications highlights three important licensing agreements.
considerations. First, it recognises the importance (5) The importance of media relations
of advertising in the creation of a luxury brand management to the creation and
image and lifestyle association. Second, it is clear maintenance of a credible luxury fashion
that fashion shows and associated events are brand reputation.
crucial to the achievement of international media
coverage. Finally, a proactive media management Finally, through an in-depth analysis of the
strategy is crucial for the achievement of adequate Burberry business model, this paper has sought to
editorial coverage and the development of a encourage further interest and debate with respect
credible international brand profile and standing. to the mechanics of generating an internationally
successful luxury fashion brand. It is hoped that it
will stimulate and encourage other researchers to
further explore the apparatus that other fashion
Concluding comments retailers use in order to reposition and generate
alternative models for the achievement of business
The re-positioning and subsequent renaissance of success.
the Burberry brand provides invaluable insights
into the machinery of the luxury fashion brand
business model. This analysis of Burberry’s
strategy has sought to both identify the generic References
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