Ritika Janiya
Burberry, the famous British luxury fashion brand, and easyJet, the budget airline, are both on the brink of losing their place in the prestigious FTSE 100 index. This surprising development comes as their share prices have fallen significantly, and they are now facing the possibility of being relegated to the FTSE 250, a lower-tier index. The final decision will be made next Tuesday based on their respective share prices at the close of the business day.
FTSE Russell, the operator of the stock market index, hinted that the insurer Hiscox and Tritax Big Box, a company that invests in large distribution centers, are likely to be promoted to the FTSE 100. Meanwhile, Burberry and easyJet’s downfall marks a shocking twist in the financial world, especially for Burberry, which has been a solid part of the FTSE 100 for the past 15 years.
Burberry’s troubles are particularly striking. The brand, known for its signature trench coats and luxury accessories, has seen its market value plummet by over 70% since April 2023. As of Tuesday’s close, its value is just below £2.6 billion, making it the worst performer in the FTSE 100 this year. Several factors have contributed to this drastic decline.
Firstly, the global demand for luxury goods has dropped this year, affecting high-end brands like Burberry. The company is heavily reliant on the Chinese market, which was expected to bounce back strongly after the COVID-19 disruptions. Although there was an initial surge in sales in 2022, the recovery has been slower than expected, putting further pressure on Burberry’s performance.
In addition to these external challenges, Burberry has faced criticism for some of its own decisions. Commentators have pointed out that the company’s strategy of moving further upmarket and increasing prices may not have been the best move. At a time when many of its core customers are being cautious with their spending, raising prices could have alienated a significant portion of its customer base.
The company’s leadership has also been in the spotlight. Jonathan Akeroyd, the former CEO of Gianni Versace, was brought in to steer Burberry in a new direction. However, his strategy didn’t pay off, and he was removed from his position last month. Burberry has since appointed a new CEO, Joshua Schulman, the former head of Michael Kors, who is expected to take over in April next year. Schulman will receive a “golden hello” package worth around £6 million, which includes deferred cash and shares as compensation for bonuses he gave up when leaving his previous role.
The leadership change came alongside the release of financial results that showed just how much Burberry has struggled. Sales for the 13 weeks leading up to June 29 were down by 21% compared to the same period last year. In a further blow to investors, Burberry has also suspended its dividend payments, indicating the depth of its financial troubles.
Meanwhile, easyJet, the budget airline, is also facing its own set of challenges. The airline has been something of a “yo-yo” in the FTSE 100, frequently moving in and out of the index over the past few years. It was last promoted to the FTSE 100 in March but now looks set to drop out again.
The airline industry has been hit hard by fluctuating travel demand, rising fuel costs, and economic uncertainty, all of which have impacted easyJet’s share price. Like Burberry, easyJet’s troubles are a sign of broader issues affecting their respective industries.
In a bit of positive news, other companies are set to benefit from the reshuffling of the FTSE indices. Raspberry Pi, a supplier of affordable computers, is one of the companies that could be added to the FTSE 250. This follows a successful debut on the London Stock Exchange in June, highlighting that while some companies struggle, others continue to thrive and grow.
The upcoming changes in the FTSE 100 and FTSE 250 reflect the shifting landscape of the UK stock market. With Burberry and easyJet facing potential relegation, it’s clear that even established brands are not immune to market pressures and changing consumer behavior. As these companies work to navigate their challenges, their performance in the coming months will be closely watched by investors and industry analysts alike.
The potential exit of Burberry and easyJet from the FTSE 100 serves as a reminder that in the business world, nothing is ever guaranteed. Brands must constantly adapt and evolve to stay relevant and competitive, especially during uncertain times. For now, all eyes will be on next Tuesday’s market close to see if these two household names can avoid the dreaded drop from the top flight of UK stocks.
