Most analysts are saying that the UK’s vote to leave the European Union will damage almost every retail sector in Europe across the board. It makes simple sense: A weaker British Pound means that British companies will spend more on production costs in other countries, and will have to pass on those expenses to the shoppers by raising prices; if it’s harder for other EU citizens to visit England, it may also cut down on shopping by European tourists. There’s good reason 90% of the members of the British Fashion Council wanted to stay in the union, and why British fashion designers are vocally unhappy about the vote.
But while Brexit is “a negative for the sector overall,” according to a new note from RBC Europe Limited, it is merely “mixed” for Burberry Group.
“The real beneficiary of a weakening GBP should be Burberry,” says analyst Rogerio Fujimori in the note. “Currency fluctuations tend to shift travel flows and luxury purchases around the globe: A weakening GBP may shift overseas tourist flows to the UK, which would benefit Burberry Group.” You may have seen this thesis already in other contexts—that while the plummeting pound is bad for Brits, it’s nice for foreigners who’d like to visit England. It means your trip to London will be a lot cheaper. So Burberry’s eventual higher costs may be offset by American tourists buying up Burberry threads in England.
Burberry’s exposure to the pound is an important part of this. It sees about 14% of its revenue in pounds, 15% of its cost of goods sold (COGS, in retail parlance), and 40% of its operational expenses. Luca Solca, luxury goods analyst at Exane BNP Paribas, explained to Business of Fashion why those numbers mean Burberry, and other British brands that do a lot of business outside of Britain, could actually thrive post-Brexit: “If their costs are largely in pounds, but their revenues are in euros or dollars, the euros and dollars they would get from abroad would buy a larger amount of pounds."
It helps that Burberry, which had 2.5 billion in revenue last year (in pounds), is not just the UK’s largest luxury brand but by far its best-known.
In the most recent Brand Finance Global 500 report, Burberry was No. 2 in all of Britain for brand awareness, second only to Unilever. HSBC and Johnnie Walker are among the brands Burberry jumped to go from No. 6 the year before to No. 2. And despite Brexit, Burberry stock (BRBY.L) is up 2% in the past 5 days, and up nearly 2% in after-hours trading in England since Friday.
Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.
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