The decision of the FTSE Russell to relegate Burberry from the FTSE 100 to FTSE 250 index on September 5 is not a surprise. Membership in the FTSE 100 is reviewed quarterly and there are usually a change or two. One of the key criteria is market capitalization, which is driven in part by share price. And Burberry’s share price has been the worst performer on the index over the past year.
Burberry has also easily been the worst performing stock within the luxury industry this year. If we we compare Burberry’s share price performance against the FSW High Frequency Luxury Monitor All Luxury Index, we find that it has fallen over 50 percent year-to-date as compared to a 5 percent decline for the industry as a whole (see plot below). So while the industry as a whole is facing macroeconomic headwinds this year, with some notable exceptions, Burberry has been in a class of its own.
This halving of Burberry’s share price has led to a steep decline in Burberry’s market capitalization, which currently stands at around 2.3 billion pounds, down from 6.5 billion pounds in 2023. This is probably the biggest decline of any company in the world over this period.
It is not unheard of for companies to be moved back up to the FTSE 100 index after a relegation to the FTSE 250, but this seems unlikely for Burberry in the near term. The company reported a 22 percent decline in Q1 retail revenues and the guidance from Burberry itself is for an operating loss in H1.
There have been numerous changes in strategic direction at Burberry that have not ignited consumers’ interest in the brand, including a significant investment in a visual and digital overhaul as well as some new brand activations with partners such as Harrod’s. But these fell flat because they lacked strategic direction and did not enhance the image of the brand. We have not seen anything in their recent decisions that make me believe that its performance is going to turnaround over the next six to eight quarters.
Bryce Quillin PhD of FSW High Frequency Luxury Monitor spoke with Glossy about the plight of Burberry this week. https://www.glossy.co/fashion/fashion-briefing-why-revolves-ai-powered-search-is-a-game-changer-for-the-business/