Perché i brand di moda non abbassano semplicemente i prezzi?

In an article published on Reuters yesterday, Helen Reid and Mimosa Spencer analyze the challenges that the new CEO of Burberry, Joshua Schulman, will face. The brand's problems exist on multiple levels, although one of the main issues lies in the relationship between prices and brand perception, especially due to the outlets. “According to some investors and analysts, Burberry’s roughly 56 outlets should be Schulman’s top priority, as they could hinder attempts to push the brand towards the high-end luxury segment,” the two journalists write, revealing that this chain of outlets scattered around the world accounts for 50% of Burberry’s profits and 30% of sales – a staggering figure. Essentially, people continue to buy Burberry, but they are simply willing to buy at lower prices: the brand has 422 stores worldwide, but half of the sales come from this small fraction of just over fifty, offering goods at lower prices. As the English saying goes, “the writing is on the wall.” Meanwhile, other brands have recently discussed their positive economic results: Coccinelle reached sales of 100 million euros this year, with a 13% growth in the first half of the year; while Elisabetta Franchi expands in the USA with its first, large store in Miami and, despite rising silver prices, Danish jewelry brand Pandora sees an 11% increase in sales and 879 million dollars in revenue. Zalando has also seen revenues increase by 5% in the last quarter – indicating that beneath the ashes of the luxury market, mid-tier consumption is still alive. So, would lowering luxury prices be enough to save it?

Price is indeed a consideration for Burberry. The article includes comments from investor Tom Selic, who states that the brand raised prices too much and too quickly, alienating aspirational clientele, while a Bank of America analyst notes that “if Burberry were to go down the premium brand route (like Coach), the price-to-earnings multiple the market applies to these brands can be half that of true luxury players.” This means that if Burberry were to cut prices in half, sales might increase but the stock value would drop and lose value for investors. Lowering prices could indeed make Burberry’s products more accessible to a broader audience and boost sales volume – but in the luxury context, this approach risks compromising long-term profitability and brand value. It is crucial to assess whether the increased sales volume would be sufficient to offset the reduced profit margin per item. Lowering prices might decrease Burberry’s margins, generating less profit per unit sold even if overall revenues rise. Following the equation “exclusivity = desirability,” lowering prices could undermine the perception of luxury, diluting Burberry’s brand equity and alienating affluent customers seeking prestige, exclusivity, and the luxury experience associated with high-end brands.

From a profitability standpoint, even though lowering prices can boost sales, luxury brands rely on high profit margins rather than just volume. If Burberry sacrifices its pricing power, it risks becoming less profitable even if it sells more – essentially undermining the intangible essence of the brand, such as perceived value, craftsmanship, and status. Lowering prices would position Burberry closer to “accessible luxury” brands like Coach or Michael Kors, while Hermès or Louis Vuitton maintain high margins thanks to strong brand perception, relative product rarity, and customer loyalty. In terms of price-to-earnings ratios, luxury brands often enjoy high multiples due to their resilience and aspirational value; if investors were to apply a lower multiple to the company, the repercussions on its market value could be drastic. However, this reasoning assumes the existence of a core customer base capable of driving brand growth, yet if those customers were truly there, the brand would not face issues in the first place. After all, core customers are sustaining Brunello Cucinelli, Hermès, Richemont’s high-jewelry brands, and even the Prada Group, which has been enjoying tremendous popularity. The customers Burberry wants are partially already present – and they’re shopping in outlets. This raises a dilemma: are outlets, which weaken full-price stores, the root of the issue, or are full-price stores too inaccessible? It’s a classic chicken-and-egg problem.

Another challenge is the inventory issue. The Reuters article makes it clear that these outlets offer trench coats and other items dating back up to five years ago – with some possibly even older. But if the brand intends to cultivate its exclusivity, why is there such a ridiculous accumulation of stock? Why aren’t its scarves and trench coats as rare as Hermès or Louis Vuitton pieces? The unsold inventory has burdened Burberry since the scandal of burning unsold merchandise in 2018, indicating that the brand produces far more than it can sell. Producing less but with higher value (in terms of craftsmanship, quality of materials, and so forth) would be a more consistent strategy to strengthen brand exclusivity and improve profit margins if sales volume alone isn’t enough to satisfy investors. Limiting the amount of products available would enhance the perception of rarity and desirability, enabling the brand to maintain high margins per product sold. A more contained production approach would lead to better inventory management and reduce the need for discount sales and outlet channels, preserving brand equity and cutting costs associated with overproduction and high inventory levels – often signs of inaccurate sales forecasts or market saturation strategies, which clearly backfired for the brand. However, serving two masters is impossible – and Burberry is just the first among luxury brands that must choose its path quickly. Many others will soon follow, unless a collapse in Asian spending squeezes them first.