By Carol Ryan

Burberry, a trend setter? The early success of a new approach to pricing is promising.

Shares in the British brand rose as much as 15% Friday after Burberry posted better-than-expected results and management sounded more confident it could avoid an operating loss this financial year. Shares are up 70% over the last three months, making it one of the luxury industry's top-performing stocks.

Burberry got a boost from improving demand for luxury goods in important markets. Business in the U.S. was brisk over the holiday season, especially in the brand's refurbished New York store.

It is another sign that the worst may be over for luxury brands in the U.S. Last week, Cartier owner Richemont said America's strong economy and stock-market valuation was boosting consumer confidence. As for China, Burberry's sales there are still weak, but slowly recovering.

The improvement at Burberry goes a bit deeper, though. New Chief Executive Joshua Schulman is honing on on the brand's sweet spot on pricing. He is charging more for categories that Burberry is known for, such as scarves and jackets. Customers don't seem to have balked at the $14,000 price tag on a new coat, which is selling well. But prices will be lower for handbags, as a push into expensive designs under old management was a flop.

The brand is trying to cater to a wider range of incomes. Wealthier shoppers can pick up a $1,600 wool cape, but a customer who doesn't want to spend that much can pick up a luxury scarf for around $500.

This is smart business. More than half of all global luxury purchases are made by 330 million people who spend $2,000 or so on expensive handbags, clothing and jewellery according to Boston Consulting Group. Wholesale customers in the U.S., such as luxury department stores, think Burberry may be attracting customers that have been alienated by big price increases at rival labels.

The brand still needs to get rid of old inventory. Discounting this stock will hurt profit margins in the short term. Burberry's timing is lucky as the luxury industry appears to be turning a corner. But it also can teach rivals a thing or two about the benefits of a sane pricing strategy.

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January 24, 2025 07:30 ET (12:30 GMT)

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