Burberry’s relationship with China is now chequered by the Uyghur scandal
The British fashion house admits in its annual report that its reliance on the region makes it very vulnerable, writes Laura Onita
‘Most luxury brands don’t source anything in China. Burberry does, which makes it even more exposed’
Marco Gobbetti knew he had to bet big on China to have a decent shot at reviving Burberry’s fortunes. Before the pandemic, a clear strategy had been set by the chief executive of the British fashion house to “build brand heat” in mainland China, the only market of true importance for luxury players.
“Even five to six years ago China was part of its growth strategy,” says a former senior Burberry executive.
“In recent years, it has become an even bigger part of it, and in the past 12 months, in a way, China saved Burberry by offsetting what it lost in European and Western sales.”
Last month, in a rare piece of good news, it upgraded its profit forecast for the full year after strong demand for its chunky sneakers and leather goods in China drove an uptick in sales.
As part of his five-year turnaround plan, Gobbetti struck a deal with Chinese technology giant Tencent last
year, and later revealed it would add its hallmark tartan design to characters in the popular Honour of Kings video game.
The goal? To add more middle class Chinese millennial and Gen-Z shoppers to its roster of regular spenders. The Asia-Pacific region accounts for almost half of its £2.6bn of annual sales. Plus, Burberry has an almost cult-like following among Chinese consumers, far from how it is perceived in France or the UK, where its classic check print has a reputation for being “chavvy”.
But the tie-up is now dead in the water amid a growing Chinese backlash following a string accusations from the West of forced labour in Xinjiang.
A Chinese actress, Zhou Dongyu, also terminated her contract with Burberry last month as a brand ambassador saying the firm had not “clearly and publicly stated its stance on cotton from Xinjiang”.
Concerns are rising that the FTSE 100 company’s turnaround plan could come apart at the seams if shoppers start to shun it.
Flavio Cereda, a retail analyst at Jefferies, says: “Most luxury brands don’t source anything in China. Burberry does, which makes it even more exposed. They’re unlucky. I read this as a message to ‘back off ’, that’s what it’s about.”
The recent US sanctions over forced labour conditions in Xinjiang triggered a series of rebuttals from China’s state media, followed by a wider boycott of Western retailers, including Burberry, H&M, Nike, adidas and Zara. In the case of H&M, major Chinese ecommerce websites removed all references to its products as a rebuttal.
The retailers have all sought to distance themselves, some more vocally than others, from the misery of Xinjiang’s Muslim population – a major hub of cotton production with much of it used to make clothing bought by Western consumers.
H&M previously said that it cannot guarantee they are not profiting from Uyghur forced labour due to the complexity of the global supply chain. “From farm level, via ginners, to spinners of yarn, fabric production and finally manufacturing, there is today no solution available to fully trace the origin of cotton used in final products,” it said.
Burberry says it will aim to source all of its cotton “more sustainably” by next year and work with organisations such as the Better Cotton Initiative and Textile Exchange to achieve this. In March last year, BCI suspended its activities in Xinjiang, and as a result, there is no new licensed BCI cotton coming from the region.
Allyson Stewart-Allen, a senior marketing consultant who has previously worked as an adviser to Burberry, says: “It’s super complex because it is political rather than a pure, commercial ‘one company has messed up, so we will hammer that company’. It isn’t about that, they are being caught up in the net and I think that’s the challenge.
“Some will say the commercial imperative overrules all else and other leaders will say it’s about the ethics of
this.”
She adds that being lumped together with other retailers is no bad thing for Burberry, and it could minimise the damage on sales. Supporting her view is new research from Jefferies, which works with a company in China to monitor the tone of the conversations about brands. It revealed that out of 265 pieces of media coverage it studied in China, 31pc was still favourable towards Burberry in the last week of March.
Cereda says: “It’s not great, but it’s not a disaster, which reinforces my view that it’s a warning shot.
“There has been some damage, but it is not earth-shattering stuff. It seems to be worse for other brands.”
H&M was so spooked last month that it put a statement out saying it was committed to China and wanted to regain shoppers and other stakeholders’ trust.
This was after it emerged that some of its stores were being closed by landlords, threatening to disrupt the company’s expansion of its fourthbiggest market.
H&M declined to elaborate further on the steps it would take to amend its relationship with China, a tactic also mirrored by Burberry.
It has kept schtum on the controversy so far, although it swiftly removed the details of the Tencent deal from its website last month.
“It has a strong, powerful, strategic, corporate PR and marketing machine and I believe the whole thing will blow over,” says the ex-Burberry executive.
Cereda agrees: “Most brands won’t comment. They won’t be positive, they won’t be negative, they just won’t comment on it because it’s the safest way to play it.”
The impact of alienating China should not be underestimated,
however.
Burberry made its first major move in the region only eleven years ago spending £70m on a franchise network to demonstrate its willingness to take control of distribution there.
It has expanded aggressively since. So much so that Burberry itself warned that its reliance on the region makes it vulnerable. It could destabilise the business if “growth does not meet the expectations either in magnitude or timing, especially in
Zhou Dongyu, the Chinese film actress, has withdrawn from her role as a brand ambassador for the British fashion house
mainland China”, Burberry warned in its annual report.
It added: “We suffer a major reputational shock in mainland China causing brand fallout.”
The Xinjiang backlash could end up being meaningless, but it could also mark the beginning of a threat that is far greater than the storms it has weathered in the past and one that is out of its control.