Shareholder wealth maximisation is gained through increasing share prices and gaining dividends. It is a long-term measure with shareholders investing and expecting gains in the future as opposed to immediately. Share price is typically the measure most commonly used to show shareholder wealth maximisation, as it takes into account the current performance of the company along with expectations of future dividends and growth opportunities.
Burberry plc on the 18th November 2008 had a share price of £1.73 which at the time was a six-year low. This low share price was caused in part by the global recession, but also from a press release stating a profit warning that they would be at the lower end of expectations. The fall in shares also happened the same day a joint venture was announced with Sanyo Shakai and Mitsui & Co in Japan to increase distribution in Japan. This joint venture in the longer term helped to increase Burberry’s presence in Japan and other Asian companies, which have lead to the increase in profits throughout the following years.
Between 2008 and 2011 they have increased shareholder value with the share price peaking on the 25th July 2011 at around £16. The company increased the share price by over 9 times the value from 2008 creating huge amounts of shareholder value.
The way they managed to increase the price and become a major player in the luxury goods industry was by rebranding their image. The iconic tartan pattern was created in the 1920’s as a lining for their trench coats. But by the 1970’s it started being used for casual outfits and highlighted a shift in clientele. By the 1990’s Burberry themselves started to ‘cash in’ on the demand for designer labels and prints such as the Louis Vuitton monogram. Unfortunately for Burberry the iconic tartan that symbolised their brand became one of the most copied trademarks and developed a reputation as being ‘chavvy’ which goes against the heritage of Burberry.
Through a change in strategy and new glossy advertising campaigns which stared a range of well known celebrities and models, they have changed the image of the brand, back to being a top luxury brand. Noticeable celebrities who have fronted the campaigns in magazines and billboards include Kate Moss, Emma Watson, George Craig and Eddie Redmayne. They have heavily invested in the company to produce new product lines and developed the communication used to target potential customers. There is increased use of the internet to broadcast catwalk shows live from their website, items can be purchased online and through numerous outlets and started using Facebook and Twitter.
In January 2012, Burberry reported a 21% sales increase in its third quarter boosting sales to £574million in the three months running up to the 31st December 2011. This increase in sales has been put down to the increase in demand in Asian markets along with Burberry becoming the most popular luxury label on Facebook with 10million fans and over 700,000 followers on Twitter. Despite the results the share price is currently 20% lower than the peak of around £16 in July 2011. It is believed that the reasoning for the share price being slightly lower is due to the expectation that the demand in Asia will start to decline despite the market growing by 30% in the third quarter. The CFO has announced that there are contingency plans in place in case the Eurozone problems worsen and the demand for luxury goods decreases showing planning in their strategy for future problems. In developed markets such as the US they are increasing their presence in department stores to help improve sales figures.
In terms of management and creative leadership they have had stability for a number of years with the creative director, Christopher Bailey joining in 2001, the Chairman, John Peace in 2002 and CEO, Angela Ahrendts in 2006. This stability has allowed Burberry to grow in terms of revenue and profit and expand into new market places and new lines.
The luxury fashion industry at the moment appears to be one of the only industries which is not ‘failing’ and going into administration. Recently many luxury brands such as Mulberry have announced profit increases whilst low end high street fashion brands such as Peacocks are experiencing difficulty. Yesterday (2nd February) the LVMH group also reported increased profits, demonstrating growth in the luxury goods markets. There appears to be a definite switch to buying quality items that will last you a lifetime rather than cheap items that will wear out or break after only a few uses which will help the luxury goods industry continue to flourish.
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