British luxury brands could benefit from Brexit
Despite the fact that most analysts say a Brexit will be damaging to the retail sector, which will have to pay more for production abroad if the pound is weaker, it could stand to benefit British luxury brands such Burberry.
Burberry’s CEO and Creative Director, Christopher Bailey, was one of over 1,280 business leaders to sign an open letter backing the Remain campaign ahead of the EU referendum on Thursday. But a Brexit may not be all bad for his company, according to a new note from RBC Europe Limited, reports Yahoo Finance.
This is partly because a plummeting pound would be good for tourism. “The real beneficiary of a weakening GBP should be Burberry,” says analyst Rogerio Fujimori in the note. “Currency fluctuations tend to shift travel flows and luxury purchases around the globe: A weakening GBP may shift overseas tourist flows to the UK, which would benefit Burberry Group.”
14% of Burberry’s revenue is in pounds, as is 15% of its cost of goods sold (COGS, in retail parlance), and 40% of its operational expenses.
This also means that Burberry, and other companies that do a lot of business outside of Britain, would benefit from having revenues in euros and dollars, which would buy a larger amount of pounds.
As reported in May, Burberry is currently seeking to overhaul its business after its annual profit dropped. The company has lost more than a third of its market value over the past 12 months, and will now shrink its product range and focus more on handbags.