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Strategies of Burberry

OVERVIEW From its founding in 1856, Burberry has become the leading British luxury brand globally. The brand is defined by: •Britishness •Authentic outerwear heritage •Historic icons: the trench coat, trademark check and Prorsum knight logo •Democratic luxury positioning •Innovation and intuition The business is driven by: •Design, marketing and retail-led strategies •Digital focus and integration •Channel diversity: retail, digital commerce, wholesale and licensing •Multi-category competency: non-apparel, womenswear, menswear and childrenswear •Global reach and balance: across core regions and emerging markets

The culture is distinguished by: •Core values: to protect, explore and inspire •Democratic and meritocratic ethos •Collaboration and connectedness •Contributing to its communities, including through the Burberry Foundation Unified and passionate teams are responsible for maintaining the integrity and vitality of this extraordinary brand while continuing to develop a business which remains relevant to ever-evolving markets and consumer tastes.

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The following pages outline the Group’s strategy under each of its five key themes. STRATEGY AND MISSION Leveraging the franchise Intensifying non-apparel development Accelerating retail-led growth Investing in under-penetrated markets Pursuing operational excellence LEVERAGING THE FRANCHISE Through more coordinated use of brand assets and greater integration of its global organisation, Burberry has the opportunity to enhance consumer responsiveness and operate more efficiently and effectively.

This potential lies both in the front and back-of-house operations. In 2010/11 Burberry was again included in Interbrand’s Top 100 Global Brands; was awarded the 2010 British Graduate 100 Award for ‘Where Fashion Graduates Want to Work’; and was recognised as the 13th most innovative company in the world by Fast Company magazine, as well as receiving the Inaugural Innovation Award at the 2010 British Fashion Awards. Product and marketing excellence underpin this brand momentum.

Key highlights in 2010/11 include: Marketing innovation •Launched new Burberry. com site The rollout of the new Burberry. com website began in the fourth quarter of 2010/11, with the site live in six languages and transactional across 45 countries by the year end. The site, known as Burberry World, is the ultimate expression of the Burberry brand, allowing customers globally – in many cases for the first time – to connect with all its aspects, from heritage, to music and video, to the full product offer.

Through the use of dynamic audiovisual content the site becomes a place to engage, entertain and interact, as well as providing the ultimate online luxury shopping experience through a personalised customer service offer that includes the ability to Click to Chat and Click to Call in real time and in 14 languages. The site provides a powerful locus for ongoing efforts to build the Burberry community around the world. Extended luxury leadership position in social media Engaging with social media is a further critical part of the Group’s strategy to connect customers with the Burberry brand. In 2010/11, Burberry further built its leadership position amongst luxury brands on Facebook, ending the year with approaching five million fans, as well as almost 200,000 followers on Twitter and over four million channel views on YouTube.

A key milestone in late 2010/11 was the launch of the brand on Chinese social media sites Sina Weibo, Kaixin001, Douban and YouKu, having launched country-specific Twitter accounts in Brazil, Mexico, Japan, Turkey and Korea earlier in the year. The Group’s own social media site, artofthetrench. com, continued to inspire people around the world and across generations to share their experiences of the iconic trench coat. By the end of the year, the site had received more than 11 million page views since its launch in November 2009. Continued transformation of fashion shows Burberry continued to break new ground in the reach and impact of its fashion shows. Previously closed door events for invited guests, the use of livestream technology allowed Burberry to take these key brand moments to an ever-wider audience over the course of the year, culminating with the livestream of the Burberry Spring/Summer 2011 womenswear show, which has been watched by over one million people across more than 180 countries around the world.

The introduction of ‘retail theatre’ technology allowed the livestreaming of shows directly to flagship stores globally, while the development of instant digital commerce purchase capability, supported by supply chain innovation, has allowed customers for the first time to buy directly from the runway for delivery in seven weeks. Further innovations, such as the streaming of the September 2010 womenswear show in 3D to five locations around the world, and the hosting of the Autumn/Winter 2011 womenswear show on the iconic video screens in Piccadilly Circus, London, have continued to broaden reach and awareness. Further digitisation of the brand Continued investment and an intense focus on infrastructure development meant the Group was able to accelerate the digitisation of the brand. In 2010/11, the Group further bolstered its world-class creative and IT teams to remain at the forefront of innovation and excellence in the creation and distribution of digital assets. Product excellence •Key apparel categories outperformance Outerwear remains the core of the Burberry apparel business, from timeless iconic pieces to innovative contemporary styles.

A key growth driver, outerwear accounted for over half of mainline retail apparel sales in the year. At the top end of the pyramid, fashion outerwear drove outperformance from Prorsum, the runway collection that creates the halo for the entire Burberry brand. •Integrated menswear SS11 saw the launch of the first fully in-house global menswear collection. Historically a licensed business, the Group exited all 11 licences between 2006/07 and 2010/11, enabling the relaunch and repositioning of this category. This first pure collection drove outperformance in menswear during the year, with reported growth of 31%. Further built childrenswear Building childrenswear remains a key focus for the Group. Childrenswear was formally integrated into the global business in 2010/11, with the division now located in the Group’s London headquarters and its product aligned with core design and merchandising strategies. 2010/11 also saw the intensification of ongoing efforts to correct those legacy issues that are inconsistent with the global luxury positioning of the Burberry brand. A key focus of this effort has been to upgrade the brand positioning with wholesale partners.

A number of Japanese non-apparel licences were also terminated during the year and the restructuring and transformation of the Spanish business were succesfully completed, with the global collection rolled out across all channels for the first time from SS11. MEASURING OUR PROGRESS Total revenue growth (Year to March) –measures the appeal of the brand to consumers, be it through Burberry stores or those of its department store or specialty retail customers. Growth rate is year-on-year underlying change i. e. at constant exchange rates. 2007-2009 and 2010* include the result of the discontinued Spanish operations. 010 has been represented to exclude the discontinued Spanish operations. In 2010/11, Burberry’s revenue was ? 1,501m – a 24% underlying increase on the previous year. China, which transferred from wholesale to retail on 1 September 2010 following the acquisition of the former franchisees’ operations, contributed 5% to this underlying growth. INTENSIFYING NON-APPAREL DEVELOPMENT Intensify and focus on under-penetrated non-apparel categories to leverage further Burberry design and merchandising expertise and iconic branding through investment in product development, marketing and supply chain.

Non-apparel remains a key driver of growth, contributing 40% of retail/wholesale sales during the year. In 2010/11 it was again the Group’s fastest growing product category. •Large leather goods Large leather goods remain the backbone of the Burberry non-apparel business, representing about 50% of revenues in this category. •Men’s accessories Men’s accessories was amongst the strongest performing categories within non-apparel, albeit from a small base. Strong growth across wholesale and retail channels was driven by a significantly expanded assortment servicing increased demand.

Consistent global growth in this category was complemented by a particularly strong performance in certain markets such as China, where the predominantly male luxury consumer responded very positively to the accessories offer. •Shoes Women’s shoes represent an important growth opportunity for Burberry, reaching 7% of mainline sales in 2010/11. Boots, a natural complement to the Burberry outerwear offer, performed particularly strongly. Licensing •Beauty In June 2010, the Group launched its first cosmetics line, Burberry Beauty, with its fragrance licensee Interparfums.

Reinforcing the brand’s core trench and outerwear heritage through its focus on natural, effortless beauty, Burberry Beauty was first introduced as a test format through a limited number of wholesale partners globally and later directly to customers on burberry. com. Supported by digital assets and used in all Burberry advertising campaigns and runway shows, Burberry Beauty is enjoying a strong early response from consumers and press as it approaches its first anniversary. •Global licences

Burberry has three global licensing agreements: fragrance (Interparfums), timepieces (Fossil) and eyewear (Luxottica). During the year, Burberry strengthened its organisation to manage these relationships more intensively, more closely aligning strategies to unlock the potential of licensed products in line with owned categories. MEASURING OUR PROGRESS Growth in non-apparel revenue (Year to March)– measures the success of Burberry’s initiatives to expand in this category, which includes handbags, small leather goods, scarves, shoes, belts and jewellery.

Revenue is retail/wholesale only. Growth rate is year-on-year underlying change i. e. at constant exchange rates. 2007-2009 and 2010* include the result of the discontinued Spanish operations. 2010 has been represented to exclude the discontinued Spanish operations. In 2010/11, non-apparel revenue increased by 32% underlying compared to 24% for Burberry as a whole. Non-apparel accounted for 40% of retail/wholesale revenue, compared to 38% last year. Handbags are core to non-apparel, representing about half of revenue. ACCELERATING RETAIL-LED GROWTH

Shift company culture and processes from a static wholesale model to a dynamic retail model. Retail-led growth refers not only to the operation of Burberry’s own stores, but also to a fundamental shift in the Group’s operating structure. 2010/11 saw strong progress in building the brand’s retail presence globally. •Retail expansion and optimisation A record number of new Burberry stores opened around the world in 2010/11. A net 26 mainline stores were opened during the year, including a new flagship in Beijing, while a net 34 concessions were added.

In line with the Group’s flagship cluster strategy, half of the new stores were opened in existing high profile markets, while store renovations included major upgrades in Boston and Las Vegas. •Digital integration 2010/11 saw investment in in-store Retail Theatre technology to connect and leverage innovative content across all platforms. This technology enabled Burberry to synchronise completely consistent messages to customers across all mediums for the first time, and offered an unrivalled audiovisual experience for customers in stores. Pads were also introduced to selected stores globally, allowing access to increased inventory through Burberry World. •Productivity gains A continued focus on driving store productivity led to the achievement of 11% comparable store sales growth in the year. Average unit retail prices rose in the period, while product flow and replenishment capability improved. The Group’s ongoing investment in customer service standards was a key driver in improving productivity, evolving to cover customer interactions across all channels to deliver a consistently high quality experience.

A global Customer Service team was established during the year to offer 24/7 tailored support to customers in 14 languages, by telephone, email and through the new Click to Call and Click to Chat functions on Burberry World. Client Services, which provides a personalised luxury service to the Group’s most important clients, expanded to 30 locations across the world, and the Burberry Experience sales and service programme was successfully extended from the Americas, Asia and Europe to Emerging Markets including China. •New concept tests

The Brit store concept was rolled out further in 2010/11, following the opening of the first test store in New York in late 2009. Five new stores showcasing this casual, contemporary expression of the Burberry brand were opened over the course of the year, including the first outside the US in Milan. MEASURING OUR PROGRESS Growth in retail revenue (Year to March)– includes comparable store sales growth (measuring growth in productivity of existing stores), plus revenue from new space. Growth rate is year-on-year underlying change i. e. at constant exchange rates.

Comparable store sales growth is defined as the annual percentage increase in sales from stores that have been opened for more than 12 months, adjusted for closures and refurbishments. Total retail sales increased by 32% underlying in the year. Comparable store revenue growth increased by 11% (H1: 9%; H2: 13%), average selling prices increased again in mainline stores and traffic benefited from digital marketing initiatives. The transfer of China revenue from wholesale to retail from 1 September 2010 following the acquisition of the franchisees’ operations contributed 12%, with the balance from new space.

Number of stores (As at March) – measures the reach of Burberry directly-operated stores around the world. 2007-2009 and 2010* include the stores of the discontinued Spanish operations. 2010 has been represented to exclude the discontinued Spanish operations. Excluding the discontinued business in Spain, the number of stores directly operated by Burberry increased by 105 in 2010/11. These included a net 26 new mainline stores, a net 34 new concessions around the world (including 20 concessions in Spain opened in Q4 to sell the global collection) as well as the acquisition of 50 stores in China.

INVESTING IN UNDER-PENETRATED MARKETS Focus on and invest in under-penetrated markets. For Burberry, these consist of both developed markets like the United States and emerging markets including China, India and the Middle East. All distribution channels and a variety of business models are used to optimise these opportunities. Key highlights in 2010/11 include: •China acquisition The acquisition of the Burberry business in China was a clear highlight of the year. In September 2010, for about ? 5m, the Group acquired 50 stores across 30 cities, which had previously been operated by its Hong Kong based franchisee. This acquisition gives the Group control of the Burberry brand in the fastest-growing luxury market in the world. Ten new stores have already been opened since the acquisition, including the brand’s most digitally-advanced flagship in the world in Beijing. Merchandising and inventory initiatives have successfully driven productivity in existing stores, with comparative store sales up about 30% in the second half of the year. Extended presence in Latin America, India and new markets Following the establishment of a joint operation in India and the establishment of regional offices in Sao Paulo and Dubai in 2009/10, the Group continued to extend the Burberry presence in these high growth markets. A major brand event in Mumbai in December 2010 marked the opening of the brand’s fifth store in India, with related PR and marketing activity introducing the brand to this young, digitally-aware customer base. In Latin America, the Group opened its first store in the key city of Sao Paulo, and now has three stores operating in Latin America.

A total of 25 stores were opened in Emerging Markets over the course of 2010/11. Through franchise partners, the first Burberry stores were opened in Armenia, Egypt, Israel and Mongolia during the year. •Building wholesale The Group continued to invest in its wholesale presence globally, building separate London, Brit and childrenswear corners in department stores, exiting generic outerwear departments and adding real estate for menswear. A focus on building in-season replenishment capability supported growth. 010/11 also saw a continued focus on building the Burberry Travel Retail business. MEASURING OUR PROGRESS Number of stores in Emerging Markets (As at March) – measures the reach of the Burberry brand in these high potential countries. Emerging Markets include: China, the Middle East, Eastern Europe, Russia, Brazil, India and other parts of South East Asia, South Africa and Latin America. Burberry added a net 25 stores in Emerging Markets, of which a net seven stores were in China, five in the Middle East and three each in India and Latin America.

Of the 136 stores, 80 are directly operated, of which 57 are in China, three in Latin America, 15 in the Burberry Middle East joint operation and five in the Burberry India joint operation. PURSUING OPERATIONAL EXCELLENCE Burberry continues to pursue its goal to be recognised as much for operational expertise as for product and marketing excellence. A continued focus on, and investment in, operational excellence has driven improvements across all business functions, and has been a key enabler for front-end innovation. •Enhanced capabilities

Reinforcing and refining core back-end disciplines was a central focus again in 2010/11, specifically in replenishment, planning, logistics and sourcing. Replenishment practices were enhanced across all product categories, resulting in a nearly 50% contribution of replenishment styles to mainline sales over the year. Enhancing planning capabilities enabled better execution and inventory management and 2010/11 also saw the development of a global pricing architecture. Improvements in sourcing drove savings during the year and quality programmes were introduced to factories and distribution centres globally.

Logistics enhancements enabled the execution of monthly deliveries and fulfilment of in-season reorders. •Introduced monthly flow In 2010/11 the Group began to execute a synchronised monthly flow of new product and floorsets across its physical and virtual real estate, featured in tailored digital assets. Requiring a co-ordinated and integrated approach across the business, from Design, to Merchandising, to Buying and Retail, this new approach introduces a refreshed offer each month, while providing a strong platform from which to connect customers more regularly with the Burberry brand. Continued SAP implementation The Group took further steps towards the completion of its implementation of SAP, with 80% of stores covered by the end of the year and the incorporation of China and Burberry Middle East scheduled for 2011/12. In addition, between April and November 2010, Burberry successfully implemented a new, single SAP HR database for the employee records of 6,500 employees in 25 countries across Europe, the Americas and Asia. This is allowing the Group to align its global HR processes and structures, and is providing global visibility for the first time. Prioritised organisational effectiveness Closer collaborative relationships within the business have been critical to the successful development and implementation of Group initiatives. Further senior level governance structures have been established during the year to leverage operating best practice globally and to co ordinate all capital investments. For example, IT has become an integral partner to key marketing and retail initiatives including Burberry World and Retail Theatre, while supply chain innovation has been a key enabler in allowing customers to purchase directly from the runway.

The foundation was also set during the year for the establishment of a global shared services team to drive efficiencies and enhance financial control across the business, while global strategy teams have been established to build detailed medium to long-term views for all regions. Externally, partnership working continues to bring benefits in key areas such as corporate responsibility. Burberry joined the Ethical Trading Initiative during the year, making itthe first luxury brand to do so. MEASURING OUR PROGRESS Retail/wholesale gross margin (Year to March)– measures, among other things, how efficiently Burberry sources its products. 007-2009 and 2010* include the result of the discontinued Spanish operations. 2010 has been represented to exclude the discontinued Spanish operations. Gross margin in retail/wholesale increased by 390 basis points to 64. 9% in 2010/11 compared to the 61. 0% margin the prior year (excluding the discontinued Spanish operations) due to the shift from wholesale to retail and increased replenishment. Adjusted retail/wholesale operating profit margin (Year to March) – measures how Burberry’s initiatives and its investment to improve its business processes, including sourcing, IT and logistics are impacting its profit margin.

Adjusted operating profit margin is stated before exceptional items. 2007-2009 and 2010* include the result of the discontinued Spanish operations. 2010 has been represented to exclude the discontinued Spanish operations. Burberry’s adjusted retail/wholesale operating profit margin increased from 12. 7% in 2009/10 (excluding the discontinued Spanish operations) to 15. 6%. Regional cost leverage was achieved despite the shift from wholesale to retail and investment in new ventures.


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