Overview
An old movie theatre-turned-church might sound like an odd place for a fund manager and luxury goods sector analyst to head on a Tuesday morning. But it’s not Hollywood or hymns we’re after. This iconic piece of Regent Street real estate in the heart of London’s retail district has been Burberry’s flagship store since 2012. And our visit today is a recce to see what the fashionwear company’s recent change of strategy looks like in practice, to judge for ourselves if Burberry is doing enough to turn its fortunes around.
Regent Street and its surroundings are jam-packed with high-end, global fashion brands. Think Chanel, Dior, Louis Vuitton. We pass through throngs of well-heeled, aspirational shoppers, all drawn to these famous names for one reason: their brand.
A strong brand – and its ongoing health – not only pulls in (and keeps) customers. It’s also a vital factor when assessing the investment potential of a consumer-facing business like Burberry. Brands vary, but I always have three questions in mind when I make this judgement.
Question 1: What’s the brand strategy?
The most fundamental question is: what even is the strategy? Does the company have one, and is it coherent?
In Burberry’s case, the company changed its CEO in mid-2024. Since then, it has built its strategy around the brand’s heritage, with a particular focus on outerwear. So we’re expecting that to be the vibe at the Regent Street store, with a fair number of trench coats on display.
To use another example, drinks company Diageo has 13 brands that generate over a billion dollars each in annual sales. The company talks about staying true to each brand’s “DNA” - the themes that are permanent and can be traced back generations in some cases. At the same time, it looks for new ways to express those themes that reflect changing consumer habits and help grow the customer base – without leaving its loyalist core behind. As Chief Marketing Officer Cristina Diezhandino tells us, "the more you open the doors to a wider audience, the more the brand becomes even more welcoming".
Only by understanding what the strategy is can I take a view on how well it’s likely to support commercial performance. That’s assuming the company gets the execution right…
Question 2: How is the company supporting its brand strategy?
Building a brand takes time. It also requires a lot of investment. So I look for companies with pricing power, for which gross margin is a good indication. I like margins to be quite high and stable or improving over time. I also like to see a company use its pricing power to invest in the quality of its products, in innovation, and in marketing.
A good example of this is the work Diageo does with its Guinness brand. The company took its time developing Guinness 0.0, its non-alcoholic response to the moderation trend among consumers. Protecting quality of product, and by extension the brand, was the priority.
Guinness has also responded to the more fragmented media landscape with innovative social media marketing, tapping into its online fandom (a.k.a. ‘Guinnfluencers’) to extend the brand’s appeal among younger consumers. At the same time, it continues to invest in sports partnerships. Guinness maintains its sponsorship of rugby’s Six Nations tournament, and has also become the official beer of the English Premier League to build its brand with football fans worldwide.
I like it when the company behind a brand discloses how much it spends on marketing, because it allows me to track it over time as a percentage of sales. A warning sign is when companies start cutting their marketing spend to deliver stronger profits. It smacks of short-termism - risking the brand’s long-term health to please investors next earnings season.
Similarly, with digital marketing I like to see companies continue to spend on brand building and not just customer acquisition, with the latter being more of a short-term solution. A brand can only stay strong if it has sufficient resources behind it.
Question 3: How well is the plan working?
I spend a lot of time with our analysts like Emma - who joined me on my visit to Burberry - looking at various indicators to figure out whether a brand is getting healthier. We look at lots of data to see how brands are trending, like Google search volumes, credit card data, and social media data. We also run our own proprietary consumer surveys to measure brand awareness and loyalty.
In addition, I regularly meet with companies face to face. Not just with CEOs, but also chief marketing officers, like Diezhandino, so I can hear first-hand how they plan to build and protect their brands. Our meeting with Diageo’s CMO underscored that brand essence, accessibility, and responsiveness to consumer trends are not only key to keeping Diageo’s brands popular and relevant, but also critical to driving future growth.
And of course we make visits like the one to the Burberry store. Being there in person and speaking to the store manager gave Emma and me a deeper understanding of how Burberry is attempting to be both fashionable and timeless, and how that’s resonating with customers. We’ll be keeping a close eye on the data to see if the strategy works.
