Burberry focuses on savings scheme as annual profits decline

London - British heritage brand Burberry is set to focus on simplifying its operations, cutting spending and focusing on core basic items and handbags to help counter a decline in annual profits.

Burberry reported a 10 percent drop in adjusted pretax profit to 421 million pounds for the year ended March 31, 2016 on Wednesday. As demand for the luxury brand continues to slow amidst a difficult retail market, Burberry announced new measures to make a 100 million pounds in annual savings by 2019. The luxury fashion house also announced plans to introduce a share buyback programme of as much as 150 million pounds, set to begin this year, adding that it will hold its dividend per share for financial year 2017 in line with 2016.

"Our industry is facing significant challenges, especially with near-term trading," said CEO and Creative Director Christopher Bailey to financial analysts and investors, reports WWD. "Today, external experts are predicting that sector growth over the next five years will be around 2 to 3 percent — down from 7 percent over the last five years. That is the reality of the world we are now operating in." He added that although the luxury fashion house's new initiatives are "stretching - but achievable."

Part of its cost saving initiatives include plans to cut 15 to 20 percent of its individual product range over the next year, across numerous categories. Burberry aims to focus more on its handbags, a rapidly growing and higher-margin sector where the British fashion houses is said linger after competitors such as Prada and Louis Vuitton. The luxury fashion house also aims to focus on promoting its key products in store which best showcase the brand's "design attitude" during the season, which ensures each store location offers the best product range for both its climate and customers.

"There will be less surrounding noise," added Bailey in concerns to the new merchandising layout which will sit in line with Burberry's plan to consolidated all of its labels under a single brand name and present both mens and womens together during fashion week. The British heritage brand also plans on adjusting its opening price selection in order to capitalize on its digital following and make the brand more accessible to them. Burberry also aims to strengthen staff sale incentives in store, focus on in-store experiences, streamline its outlet portfolio and bolster its relationship with wholesale partners to drive retail productivity.

Although company stock price dropped following its financial report on Wednesday, analysts and investors reacted positively to Bailey's plan. "A renewed focus on in-store service and productivity would bring Burberry in line with the focus of luxury peers and would create a leaner, fitter operation with which to take the blows being dealt by a declining global demand," commented Andy Hall, analyst at Verdict Retail. "Burberry’s decision to streamline its product ranges, at the same time as introducing some new products such as its Scarf Bar and new male fragrances, demonstrates its commitment to innovation, and attempts not to be left behind by other luxury fashion players."

Photos: Burberry, Facebook