Use Burberry as a Defensive Stock: Investment Manager

Asian consumers, and especially the Chinese, are driving the growth in the luxury sector, which has continued unabated despite the woes of the economy elsewhere.

Model at the Burberry fashion show
Maurits Sillem
Model at the Burberry fashion show

Ana Armstrong, CEO of Armstrong Investment Management, told CNBC that the trend is an important one for the luxury sector.

“The phenomenon that is very interesting is the sales [coming from] Chinese consumers abroad, mainly in Europe,” Armstrong said. "The numbers are showing that over 50 percent of European luxury sales are attributed to the Chinese consumer. For the first time last year, Chinese consumers have overtaken Japanese consumers on the luxury market front in Europe.”

Fashion brand Burberry Group showcased its latest catwalk collection in central London just weeks after posting another jump in quarterly sales.

“In luxury you owe a disproportionate amount of business to tourism,” Burberry CEO Angela Ahrendts told CNBC, highlighting the annual influx of Asian consumers traveling to Europe to shop. “What we’ve told investors is we are very focused on flagship markets like London and Paris.”

As well as focusing on bulking up its flagship markets, Burberry is continuing to expand its presence within emerging markets.

“We have been, and still continue to redeploy capital into emerging markets,” Ahrendts said, noting that it’s not just China that is key.

“We’re also very focused on the rapid growth in Latin America, specifically Brazil,” she said. “I think as the developed markets softened, everyone shifted into emerging markets which I think is now paying off wonderfully.”

Burberry is the undisputed winner in digital among its peers, boasting the highest number of Facebook fans of any luxury fashion brand, and the most followers on Twitter for a luxury brand. Burberry also streams its catwalk shows live into its brick-and-mortar stores.

Does this investment in digital really translate into sales?

Burberry’s in-store live streaming, the Retail Theater, “allows customers to click to buy and have runway items delivered direct to their homes within six weeks,” Ahrendts said. “The results speak for themselves. Our strong sales numbers are due in part to sales from iPads in store.”

The outlook for luxury brands is promising, according to Armstrong. “These companies are sitting on a lot of cash. They can still finance a lot of organic growth, they can return some of the cash to shareholders or they can engage in M&A activities.”

Armstrong said Burberry could be an interesting play for the defensive investor.

“Burberry is very well positioned in China and is much more defensive than a few years ago because a lot of its revenue is derived from retail rather than wholesale,” she noted.

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London Fashion Week: Autumn-Winter 2012


Ana Armstrong has no personal or company holding in Burberry.