British luxury fashion house, Burberry, announced sales would fall by 80% towards the end of March as a result of coronavirus. The virus which spread from China to Europe and the United States has damaged the luxury industry and has led to stores shutting.
More than 60% of their stores in EMEIA (Europe, Middle East, India and Africa) and around 85% of stores in the Americas are currently closed. The stores still open have rescrtictions and reduced working hours.
Before the impact of the coronavirus, it was forecasting a low-single digit rise in revenue and a stable margin. However, the British luxury brand said Q4 2020 sales would consequently be 30% lower and like-for-like-sales would be down 70-80% in Q1 2020.
Compared to Britain’s blue-chip index which is currently down 31%, Burberry’s shares have fallen around 19% over the past few days and lost 44% of their value over the last month.
Burberry, like many other high-end fashion labels, noticed the early impact of the coronavirus crisis in February when Chinese sales drastically fell.
German fashion brand, Hugo Boss, also had to close stores in Europe and America, and scrapped its outlook for 2020 results. As European cities trying to contain the virus are in lockdown, international tourism has abruptly stopped and many stores have had to close.
Nevertheless, Burberry also announced sales with China, which accounts for 40%, has started to improve recently as China has successfully tackled the virus for the time being and shops have started to reopen.
Chief executive officer, Marco Gobbetti, repositioned Burberry further upmarket with refreshed product ranges by designer Riccardo Tisci, which had seen a strong early response from customers.
He said: “The outbreak of the coronavirus in Mainland China is having a material negative effect on luxury demand. While we cannot currently predict how long this situation will last, we remain confident in our strategy. In the meantime, we are taking mitigating actions and every precaution to help ensure the safety and wellbeing of our employees. We are extremely grateful for the incredible effort of our teams and our immediate thoughts are with the people directly impacted by this global health emergency.”
To maintain a strong financial position, Burberry has pledged to cut costs and has 600 million pounds of cash and a 300-million-pound revolving credit facility. This would require renegotiating rents, restricting travel and reducing discretionary spending.
Hargreaves Lansdown equity analyst, Nicholas Hyett, said: “There are some glimmers of good news. Chinese sales are recovering after stores reopened – although we suspect the bounce back will be slow. The balance sheet still looks pretty healthy with plenty of cash and borrowing facilities available, helping the group to weather a downturn.
“The key question for investors is how long will the current lockdowns last? That’s an unknown and the longer this drags on the more permanent the damage will be.”