Retail in Asia

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Burberry profits to slump 10% as wealthy Chinese tighten purse strings

Burberry has unveiled plans to slash costs and streamline its business after the luxury retailer suffered a steep fall in profits.

Annual profits fell by 10 per cent to £421million ($614 million), from £444million in 2015, following a significant tail off in sales in China and Hong Kong. It now expects profits for next year to be ‘towards the bottom of the range of expectations.’

Even reduced prices in Asia last year on selected rainwear and scarves could not prevent the sales decline. Burberry products are not cheap, with a high end raincoats and bags fetching as much as £1500.

Jasper Lawler, at CMC Markets, said: ‘Reducing the number of product lines and marketing spend is a necessary evil in order to contend with the lower revenues from Hong Kong and Macau.

Burberry is not the only luxury group to be suffering. A number of luxury retailers had become accustomed to soaring growth in Hong Kong in the past decade following the emergence of a rich middle class in China with plenty of cash to spend.

But plummeting sales at the city’s shopping malls, following a drop in tourists from mainland China in the wake of the 2014 pro-democracy protests, has ended Beijing’s conspicuous consumption.

Steve Clayton at Hargreaves Lansdown: ‘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.’

With the luxury market struggling, analysts also said Burberry’s results represent the ‘new reality.’

(Source: Daily Mail)