Burberry lost £1bn of its market value yesterday on fears that China's appetite for the company's luxury bags and coats may be on the wane.
Driven by its popularity in some of the world's top shopping cities and soaring demand from emerging markets, Burberry has previously shrugged off the economic downturn with stellar sales.
But its most recent trading update suggested that rampant growth has come off the boil as sales growth ground to a halt in the 10 weeks to September 8, prompting the fashion house to warn its profits will be at the bottom end of City expectations.
The group's shares were at a record high earlier this year, but yesterday's announcement saw them plunge nearly 20% — knocking £1bn off the FTSE 100 group's value.
Burberry has rejuvenated its brand in the decade since its famous red, black and camel check was linked to ‘Chav’ culture and has so far been immune to the economic downturn as new middle classes in countries including China snap up luxury Western brands.
Jon Copestake, retail analyst from the Economist Intelligence Unit, said: “Burberry's warning could signal a retrenchment for luxury firms as Chinese growth slows. However, reliance on China is just one of a number of factors. Weakness in the eurozone remains influential.”
The group — which has 196 retail stores, 207 concessions, 48 outlet shops and 58 franchise stores worldwide — warned its full-year profits would be at the bottom end of expectations amid challenging conditions. The previous range of market forecasts for the financial year had been for Burberry to achieve profits of between £407m and £455m.
The luxury goods firm said like-for-like sales were flat in the 10 weeks to September 8 and have started to fall over recent weeks.
Burberry chief executive Angela Ahrendts warned the external environment was “becoming more challenging”.