Why is Burberry underperforming in Eastern Europe?

Present in six Eastern European countries with franchising operations except Hungary (Budapest) which is a directly operated store, Burberry has been lagging behind major international luxury brands even before the debut of the international financial crisis.

Even in Russia, Burberry’s largest market in the region in terms of sales and number of stores, the brand has modest representation in comparison with any major similar market in Asia. For instance, in Yekaterinburg, Russia’s third wealthiest cities, Burberry is present with one, undersized store in comparison with the potential of the city’s luxury market. The design concept of the store is an old one, rarely to be found in most other international countries where the brand is present.

Ranking second in the region after Russia, in terms of sales, but best performing considering market size, is Ukraine, where Burberry has one mono-brand store. However, in comparison with other present luxury brands (with mono-brand stores), Burberry is surpassed by brands such as Salvatore Ferragamo, Gucci and Yves Saint Laurent. To illustrate Burberry’s performance in respect to the potential of the Ukrainian luxury market potential, Louis Vuitton’s yearly turnover is 5 times Burberry’s yearly turnover.

In all other Eastern European countries, where Burberry is present with mono-brand stores (each country with one store)– Serbia (Belgrade), Poland (Warsaw), Hungary (Budapest), none of the stores exceeds an annual turnover of 2 million euros. For example, in Serbia, the yearly turnover of the Burberry mono-brand store is half of the yearly turnover of Hugo Boss.

In all major capital cities in the region, Burberry stores have top downtown locations on main high streets, with great visibility and adjacent to other international luxury brands  in Belgrade – near Emporio Armani, in Warsaw near Ermenegildo Zegna and steps from Emporio Armani, in Budapest – near Gucci, in Kiev opposite Louis Vuitton and near Gucci etc.

As part of its regional expansion strategy, Burberry is due to open early 2011, its 8th store in the region, in Romania the fourth largest market in Eastern Europe after Russia, Ukraine and Poland. Surprisingly, the 500 sqm store in the capital city of Bucharest will be located in a small, one way street, with very limited parking possibilities. Apart from the Bistro Restaturant of a four star hotel (Centre Ville), Luterana street has no other retail store, rather small cafes. Romanian media has been speculating for almost a year that the Burberry store will actually open in the former space of the Stefanel store, a prominent location right in the heart of leading luxury shopping street Calea Victoriei. Instead, leading local luxury retailer Alsa Group snapped up the ‘’Stefanel’’ location, to strategically relocate its Max Mara mono-brand (due to open early 2012).

Strong competition from outlet shopping and shopping abroad, coupled with insufficient marketing activities and in some cases, undersized stores in comparison with market potential, all seem to be the key factors behind Burberry’s performance in Eastern Europe.

Oliver Petcu