British luxury fashion brand Burberry is set to withdraw from London’s FTSE 100 stock index after 15 years in the top stock index, the stock exchange said on Wednesday, with analysts citing strategic mistakes and weak demand from China.
The demotion will be “effective from the start of trading” on September 23, FTSE Russell, a subsidiary of the exchange, said in a statement.
Burberry, whose former chief executive abruptly resigned in July following the company’s poor performance, and the global luxury industry as a whole are feeling the effects of economic tensions in China, the world’s second-largest economy.
The withdrawal of Burberry, the 168-year-old brand known for its trench coats and trademark red, camel and black check pattern, follows a regular reshuffle in the index, which includes the 100 largest companies traded in London by market capitalization.
Burberry has been the worst-performing company on the FTSE 100 index over the past year, with its shares falling about 70% and its market capitalization falling to 2.3 billion pounds ($3 billion).
The company will now move to the second-placed FTSE 250 index, with insurance company Hiscox taking its place on the FTSE 100 index.
Jonathan Akeroyd stepped down as CEO after the group itself described its recent performance as “disappointing”.
Less than two and a half years later, Akeroyd stepped down and was replaced by Joshua Shulman, former CEO of American fashion brands Michael Kors and Coach.
Risk of acquisition?
However, a quick recovery is not expected, with Burberry Chairman Gerry Murphy warning that the company may post an operating loss in the first half of the year.
Burberry’s first quarter (the three months to the end of June) revenue fell 22% to £458 million.
Problems across the luxury fashion industry have been highlighted, with Gucci’s parent company Kering issuing a profit warning in April, citing weakness in the Chinese economy.
Richard Hunter, head of markets at Interactive Investor, said Chinese data released over the weekend showed weakness in manufacturing, “which will put further pressure on Burberry if necessary”.
Thomas Burberry founded the brand in 1856. He went on to invent gabardine, a lightweight, water-repellent fabric used in the brand’s trench coats.
Dan Coatsworth, investment analyst at AJ Bell, said Burberry was “under threat of takeover” with its shares trading at their lowest in 14 years.
He added in a client note: “Considering these, potential bidders need to see past the short-term issues and be confident in the company’s ability to get back on track.”
“The decision to heavily discount products to make Burberry more upmarket and clear unsold stock was a misguided move. Shoppers love a bargain, but discounting threatens to make luxury brands less appealing, potentially making them less appealing.”
Chief creative director Daniel Lee, who was appointed to the prestigious role in late 2022, aims to highlight the brand’s British heritage with his collections.
But Coatsworth said China’s sluggish economic recovery since the pandemic has affected demand for his designs, given the country has historically been a rich source of income.
“What makes Burberry so appealing to potential buyers is the enduring appeal of its products. When they see the check pattern they immediately associate it with the brand.”
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