Emerging markets boost Burberry

27th May 2011

Burberry's pretax profit climbed to £295.7m from £211.4m last year, as revenue increased 27pc to £1.5bn in the year to the end of March, reported the Daily Telegraph.

According to the report, Burberry said emerging markets such as China, Brazil and India accounted for 16pc of retail and wholesale revenue in the year, up from 11pc of the total last year.

Also, Burberry is taking aim at the Asian and Latin American markets, where its haute couture trench coats and high-end leather goods are becoming increasingly popular with affluent shoppers, adds the Daily Mail.

The company, famous for its camel plaid, opened 26 new shops in the year, mainly in "high potential" markets like India and Mexico.

However, Victhebrit comments on the report in the Daily Telegraph: "Burberry seems to have lost out to others – Prada in particular, in Japan. Japanese buyers are a rum lot. They insist on top quality and don't mind paying for it if they feel they're getting it."

Eku Kobayashi, Economist at H2O Markets, said emerging markets were crucial for Burberry. He is quoted in the Guardian: "While the aftermath of the financial crisis two years ago has left High Street spending on the back foot, Burberry's unique position as a luxury goods retailer has ensured continued growth across almost all of its markets with the notable exception of Spain, says the report. It is the exposure to emerging markets rather than recession-hit western nations that has driven profitability at a difficult period in the economic cycle."

But what other companies will benefit from growth in the region?

Alec Letchfield, manager of the HSBC UK Focus fund and chief investing officer, says: "There are a broad range of companies that benefit from demand from emerging markets – they tend to either be those that produce superior, value added products or ones that provide something that countries such as China are short of."

He said there are three ways to play on emerging market growth. One sector is mining, with stocks such as BHP Billiton and Rio Tinto benefitting from urbanization in countries like China. "Most of the demand for metals and minerals comes from China," says Letchfield.

Another method is to consider the types of companies – which includes the likes of Burberry – that make aspirational, desirable brands.

Letchfield says: "Companies such as Burberry and BMW produce products that people aspire to own in emerging markets."

Finally, he adds: "Another space to look at is industrial/engineering companies such as Spectris, which produces precision instruments and AVEVA which is a software design company for the oil and gas mining industrials. China is making use of these products."

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20 thoughts on “Emerging markets boost Burberry”

  1. Anonymous says:

    “Is there a song for this?”

    On the Road Again  by Canned Heat?

    1. Zak says:

      How about..

      “Dont let me down” by Twisted Sister.

  2. Anonymous says:

    Not today’s topic but a German view on EU debt as represented by the ESM:

    http://www.youtube.com/watch?v=rxMOW94V6xQ

    1. Anonymous says:

      Hi Kit

      You might like to take a look at the youtube video I have put in the comments to yesterdays blog as Ioannis tells me that it is getting a lot of airtime on Greek tv.

  3. Anonymous says:

    Shaun re Japan. Would you  agree that to a large extent the “quality” of Japanese political life has impacted and still is impacting upon any sign of economic revival? I seem to see the same old grey men with grey hair in grey suits…..they have been around too long and there is little sign of any new, young blood with new concepts coming to the fore….

    1. Anonymous says:

      Hi Ray

      After a while one’s head starts to spin with it but I think that it is now 6 Prime Ministers in 5 years. I know that there is some stereotyping here but in generic terms Japan has been innovative in the main rather than inventive. We in the UK tend to be the reverse. If you will forgive me for a broad sweep my point is that quite a cultural change is required for them to be inventive…..

      Also in terms of us being inventive I am discussing the past rather than the present as currently the clique we have in charge show few signs of either invention or innovation.

      1. Anonymous says:

        Shaun – thank you for your response. I can understand the innovative/inventive split especially in terms of “products” and can see quite considerable cultural change is required to make the jump. Can they do it?
        Concerning UK, totally agree – just the same old tired and tried dogma!
        Thank you.

  4. Anonymous says:

    Another off topic article bemoaning the poor quality of European leadership:

    http://www.atimes.com/atimes/Global_Economy/MJ29Dj02.html

    When this crop of politicians – Germany’s Angela Merkel, France’s Nicolas Sarkozy, Silvio Berlusconi of Italy et al – do agree to meet, it would be a mistake to term that a “summit”. A more appropriate description would be “base camp”; think about it, these guys meet, and then start negotiations without having the ability to agree on anything because their governments back home simply never secured the mandates to do so.

    1. Anonymous says:

      Good quote! But I suppose even a mole-hill has a “summit”?

  5. Michael says:

    That is the key, Japan run a healthy trade surplus, as they have for as long as I can remember.
    Whereas the UK run an unhealthy trade deficit, as they have done for many years. Indeed the cumulative trade deficit is equal to our National Debt £1.5 Trillion at least, which is just as you might expect.
    The problem is no-one in UK Management Plc pays one jot of attention to this while despite a giveaway £ we’re still running a deficit at the rate of minus c£80 billion per annum, that, even though c£20 Billion of prime central London property is being snapped up on the cheap, mostly by dodgy money from the worlds questionables. This deficit must then be borrowed from abroad.
    Japan, is in a different league.

    1. Anonymous says:

      Hi Michael

      I have 2 thoughts for you in reply

      1. Is the sell-off of in essence London real-estate a way of financing our trade deficit? There is food for thought there not least in the fact that as it is a stock there is limited supply.

      2.Balance of trade numbers are often horribly wrong. I write this as someone who has worked in markets which have hung on 1:30 trade figures from the US and 9:30 ones from the UK ( a type of ultimate insanity…..).When I was at the LSE I remember being told that the 1967 figures had been revised and that the devaluation which took place then was not necessary…

      So there you have it, we may have little idea of what our deficit actually is although the time it has gone on for does tend to suggest we have run one.

      1. Anonymous says:

        In question to point 1 , does the purchase of overseas property by Brits contribute to the trade deficit ?

        1. Anonymous says:

          In loose language yes. If we use a stricter definition then no because the trade deficit covers a narrower list of factors and it would be picked up in the Balance of Payments or current account which is many ways is best thought of as a cash flow.

          Any rent back etc would be a credit.

          1. Anonymous says:

            Thanks Shaun. Whatever cash the UK gets in from selling London real estate has likely been dwarfed by the money spent on Spanish and other foreign property.

  6. Richard says:

    Hi Shaun, been follwong the notayesman blog and now here for a while, always informative and great background I don’t find anywhere else. Thanks

    A question wrt Japan, 95% debt seems to be owned by Mrs Watanabe, but how old is she on average and are her daughters as keen to invest in the same way – will the demographics cause a big shift in behaviour as investments might need to be sold to fund retirement or healthcare ? If and when will this impact be felt by markets ?

    1. Anonymous says:

      Hi Richard

      Thank you for the compliment and welcome to my part of the blogosphere, or the comment section anyway.

      As I have just replied to Ray some of these matters are broad generalisations but Japan does seem to be changing and in particular the attitude of young women is different to that of the mothers and grandmothers. So there is more than a chance of a change here I think. I am talking finance matters here rather than the battle of the sexes where there have already been changes in Japan.

      Will the demographics cause a change? Yes I believe so. I have discussed this in the past and clicking on the category Japans economic situation will take you through to some articles where I have outlined it.

      When will this happen? I will let you know, the team I was part of got the Nikkei collapse right in the early 1990s so there is some hope from my track record that I can repeat that!

  7. Drf says:

    Reverting to an earlier topic related to the “Occupy” movements; it was suggested by some in comments to that blog that these movements did not seem to have any clear leadership or objectives. However there does seem now to be emerging evidence that such a criticism is becoming increasingly erroneous, and that perhaps the crystallizing objectives find empathy with a larger and increasing fraction of people in general. An article in The Daily Telegraph by Janet Daily (which is well worth reading) concerning the collapse of democracy, attracted several posts by what seem to be UK activists, more than one of whom posted a link to what I feel is an interesting and perhaps somewhat frightening site; several attempts were made to post the text of a letter drafted for supporters to send to their MPs and government Minsters in The Telegraph comments, but these were deleted by pro-establishment moderators. I would suggest this letter is well worth reading, and it is on:http://dont-tread-on.me/dear-politician-join-the-99-or-we-shall-kill-you/

  8. “The question of who will lend to the EFSF, on whose collateral, and who will ultimately repay the loans, was barely addressed last week. Such tricky questions will apparently be answered at the next European summit in December. Meanwhile, the fundamental disagreement between France and Germany regarding who should take the biggest losses ? eurozone governments or private creditors ? remains unresolved. Since Thursday’s announcement, though, Germany’s powerful constitutional court has issued an injunction requiring the country’s full Parliament to approve any EFSF bond-buying”
    http://www.telegraph.co.uk/finance/comment/liamhalligan/8857518/Why-the-latest-eurozone-bail-out-is-destined-to-fail-within-weeks.html

    1. Anonymous says:

      Hi Mr.K

      “tricky” questions are always for summit n+1 it would appear.

      The part of the article you quote from in saying “who will ultimately repay the loans” assumes that they will be able to borrow the money which I have argued many times is by no means a given and ignores the fact that interest rates on EFSF money seem likely to rise ( and have edged higher since they began which is not inspiring considering how little it has borrowed so far…).

      On and on it goes. Perhaps they are trying to bore us into submission!

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