After murmurings in October about a potential deal between Coach and Burberry to join forces, it seems the truth has come out: According to reports, Burberry has rejected several takeover offers from the NYC-based fashion company. The prospective deal would have created an estimated $20 billion luxury goods conglomerate.
Coach would not confirm the speculation, stating in an email it has a “long-standing policy of not commenting on rumors and speculation.” As for Burberry, its apparent move to reject the deal led to rising stock — it opened 2 percent higher in London today, following several quarters of dipping sales.
Elizabeth Elder, analyst at L2, said despite Burberry’s rebuffs, the company will still ultimately pursue some form of a deal, likely a buyout, in order to overcome continued slumping sales. According to last month’s earnings report, Burberry’s revenue declined 4 percent to $1.4 billion and adjusted profit fell 24 percent to $181 million during the six-month period ending on September 30.
“Burberry’s talks with Coach signal that Burberry is open to the idea of a merger in general, a move that would potentially prevent dilution of its already saturated brand image,” she said. “However, since Coach made multiple offers that Burberry rejected, it could be an indication that the brand is still open to a buyout. At this point in time — with sales still in free fall — e-commerce leadership, digital savvy and brand heritage are not enough to save Burberry.”
Since initial signs of strife, Burberry has honed in on a strategy focused on bolstering the brand. Its tactics have included splitting the role of Christopher Bailey, Burberry’s chief executive and creative officer, into a two-person position to maximize efficiency; increasing personalization efforts by leveraging data; rolling out a revamped mobile app and increasing its beauty business.
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Sucharita Mulpuru, chief retail strategist at Shoptalk, said while Burberry’s decision to turn down Coach likely had to do with a bad deal, she could also foresee the luxury brand making an autonomous comeback. She alluded to the revitalization of the brand in the early 2000s under Bailey, after the luxury brand had been taken over by “chav” culture, a pejorative British term for the working class.
“I suspect the price wasn’t right, more than anything. Burberry still has a strong brand, and with the right leadership, brands can make a comeback,” she said. “Burberry had its own comeback about a decade ago, after all. Like all luxury, it’s a bit challenged by the strong dollar and weak demand from China, but that’s not a reason to run to Coach at all costs.”
Brandon Mitchel, an associate at Threadstone Advisors—who formerly told Glossy that he didn’t foresee a Burberry and Coach partnership coming to fruition—reiterated that brand incongruity remains a major factor behind the lack of a deal. “Both companies target a different customer class, where Burberry sees itself as ‘true’ luxury and views Coach as affordable luxury.”
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Luca Solca, managing director of global luxury at Exane BN Paribas, echoed Mitchel by stating that differences in the brands and consumer demographics are indicative of the deal falling through. He noted that, though Coach has also struggled this year amid falling stock prices and could benefit from the cachet of a storied luxury brand, Burberry is ultimately focused on maintaining its brand identify. Coach has experienced steady decreases in sales since 2013, and has scaled back offerings from mid-tier departments stores in an effort to project itself as a higher-end brand.
“I expect the idea would be to drive Burberry to a broader public, by turning it into an accessible luxury ‘British Coach,'” Solca said. “The problem is that management at Burberry has been working in the past twenty years to move away from that and elevate the brand. So, I’m not too surprised to read they rejected the offer.”
