Burberry acquires 15 percent stake in their Chinese business

Burberry plans to continue as usual after buying back the remaining 15 percent stake in their Chinese business. Earlier this week, Burberry announced they had acquired the remaining 15 percent economic interest in their Chinese business held by Hong Kong-based partner, Sparkle Roll Holdings Limited.

The transaction cost 54 million pounds, and gives Burberry 100 percent economic interest in the group's Chinese business. Burberry had a call option on the shares, and analysts expected the option to be exercised.

While Burberry has declined to comment on the purchase, they confirmed that option liability will come off the balance sheet during interim results in November.

Burberry operations will continue as scheduled after share buyback

The day-to-day operations of Burberry China are expected to proceed as usual, however Burberry will now receive 15 percent more sales and profits.

In 2010, Burberry bought the majority of its Chinese business with the goal of upgrading their offers in China and building more stores there. Sparkle Roll held the remaining stake and acted as a silent partner after Burberry bought the majority of its business in 2010.

The move to buy the remaining 15 percent stake is part of Burberry's strategy of expanding in Mainland China, although sales in the region are flat and there is a major contraction demand in Hong Kong. China was once seen as the next frontier for luxury goods expansion, but due to economic woes in the region many luxury brands have stalled their plans for growth their.

Burberry chief creative officer and now former chief executive officer Christopher Bailey said the brand isn't giving up on China, despite the country's economic woes.

Bailey said China “will contribute a disproportionate amount of customers, both while traveling and increasingly at home. We have developed our strategies with this understanding of the landscape in mind.”

Burberry has other challenges ahead aside from China though. In the three months to June 30, Burberry witnessed low single-digit comparable sales declines.

Next year, Burberry will be expecting a new chief executive officer. Bailey recently stepped down as chief executive officer in the face of the board's dismay with him as chief executive, and Marco Gobbetti of Celine will take over as the company's new chief executive officer. Bailey will continue on as chief creative officer and will also be president of the company.

 

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