GÖTEBORGS UNIVERSITET
HÖGSKOLAN FÖR DESIGN OCH KONSTHANTVERK Master of Business & Design KFD555 Business Analysis Thanh Huyen Nguyen
TABLE OF CONTENTS
Introduction 5 Burberry Group Overview 6
Company History
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13
The Subject The Object
Burberry Business Analysis 14
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20 26
Burberry Core Strategies 30
Business Model
The Finance
Future Growth
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INTRODUCTION Founded in 1856, Burberry is a global luxury brand with a distinctive British identity. Since then, the brand has built a reputation for design, innovation and craftsmanship. With the invention of gabardine by Thomas Burberry more than 130 years ago, outerwear has been at the core of the business and remains so today – best expressed through the iconic Burberry trench coat. In this report, I want to reveal the secrets behind Burberry‘s success by analysing the triangular model developed by Professor Thomas Polesie. This model is an open model based on three dimensions - the subject, the object and the finance. Firstly, I want to take a look back at the history of Burberry and its transformation from a small shop in London to a global fashion empire. Then, I will give an overview of Burberry‘s business model and introduce the key themes which underpin the company’s strategic agenda. In the second part of the report, I will set out the triangular model, including the subject, namely the people involved at Burberry and its culture, the object, described through the business operations and its activities aimed at driving positive environmental and social impact, and the finance by using the rectangular model. In contrast to the triangular model, the rectangular model is a closed model. It describes the most relevant financial key numbers and sets them into relation to each other. By comparing the yearly constructed rectangles – in this case three years – on the basis of the annual report, the income statement and the balance sheet, trends and future developments can be indicated. At the end of this report, I want to point out Burberry‘s core strategies for the future and will identify significant growth opportunities for the company. For this research, information has been collected from the official website of Burberry, from online news articles, as well as from the annual reports found on www.burberryplc.com/.
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BURBERRY GROUP OVERVIEW Company History...............................7 Business Model.................................13
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BURBERRY GROUP OVERVIEW
COMPANY HISTORY THOMAS BURBERRY
Born in 1835, he became an apprentice draper before establishing Burberry in 1856 – at the age of just 21 – initially specialising in outdoor clothing.
Image 1: Thomas Burberry Image 4: Burberry Fabric
Image 2: Cotton Flower
Image 5: Burberry Tailor
THE INVENTION OF GABARDINE
The innovative fabric was invented in 1879 by Thomas Burberry. Breathable and weatherproof, it revolutionised rainwear – which up until then had typically been heavy and uncomfortable to wear.
Image 3: Burberry Gabardine
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BURBERRY GROUP OVERVIEW
FIRST LONDON STORE The company moves into its first London store at 30 Haymarket in 1891.
Image 6: Burberry‘s London Store at 30 Haymarket
ORIGINS OF THE TRENCH The trench coat began as the Tielocken. Patented by Burberry in 1912, it was an unbuttoned style made from gabardine and fastened with a belt.
Image 7: Burberry Trench Coat
Image 8: The Tielocken
The trench coat was developed to serve the needs of the military in the early 20th century. Epaulettes displayed an officer’s rank, while the belt’s metal D-rings were used to attach equipment. 8
BURBERRY GROUP OVERVIEW
Image 10: Roald Amundsen reached the South Pole with Burberry clothing and tents
POLAR EXPEDITIONS
Image 9: Burberry Polar Outfit
From 1914 Burberry was the outfitter of choice for several polar explorers, as the gabardine fabric’s protective and lightweight qualities made it well-suited to cope with inhospitable conditions.
Image 11: Burberry Check
The Burberry Check, registered as a trademark, is introduced as a lining to the trench coat in the 1920s.
Image 12: Arthur Clouston and Betty Kirby Green
Image 13: The Burberry Aeroplane
WHEN YOU TRAVEL BY AIR In 1937 Burberry sponsored a record breaking flight from Croydon to Cape Town in an aeroplane called The Burberry. Both aviators Flying Officer Arthur Clouston and Betty Kirby Green wore Burberry. 9
BURBERRY GROUP OVERVIEW
BRAND ROYALTY Burberry is awarded a Royal Warrant by Queen Elizabeth II in 1955.
Image 15: The 1964 British women‘s Olympic team in their Burberry uniforms
Image 14: Charles and Diana wearing Burberry
Image 16: Advertising Campaign with Kate Moss
Mario Testino shoots the first advertising campaign for Burberry in 1998, featuring model Kate Moss.
Image 17: Burberry Board of Directors
Since 2001, a new management team began to revitalise the brand with new design collections, new product ranges and a distinctive new advertising campaign.
Image 18: Burberry forms a joint venture for nonapparel with Sanyo Shokai and Mitsui & Co. in 2008
Image 19: Burberry Prorsum Fall/Winter 2011 Collection
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BURBERRY GROUP OVERVIEW
Image 20: In September 2012 opening of 121 Regent Street, London, Burberry’s most digitally-advanced brand experience
Image 21: Beauty becomes Burberry’s new product division in 2013
Image 22: Cara Delevingne and Kate Moss for My Burberry Perfume in 2014
Image 23: Backstage at the Burberry Prorsum Womenswear Spring/Summer 2015 Show
Image 24: Burberry celebrates the 160th anniversary of its founding with the short The Tale of Thomas Burberry
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BURBERRY GROUP OVERVIEW
BUSINESS MODEL: A DISTINCTIVE GLOBAL LUXURY BRAND Four key themes underpin the company’s strategic agenda, shaping and connecting its global activities.
BRAND FIRST
The business is led by the brand, with decisions taken in its best long-term interests.
FAMOUS FOR PRODUCT
Burberry is committed to the creation of authentic and distinctive products and continuous innovation in design and manufacturing.
Image 25: Burberry Weaving Loom
· Authentic British heritage with rich cultural and historical associations · Craftsmanship, innovation, design and creativity are key characteristics · Global engagement driven by innovative creative content and experiences, supported by digital, social and traditional media
Image 26: Burberry Cashmere Scarf
· Globally recognised iconic products, including the British-made heritage trench coat and cashmere scarf · Product divisions are Womens, Mens and Childrens apparel, Accessories, and Beauty (which includes fragrance and make-up)
CUSTOMER-CENTRIC
PRODUCTIVE AND RESPONSIBLE
Burberry aims to be sector-leading in understanding, engaging and serving its customers, both online and offline.
More productive and efficient ways of working are a priority across the organisation, together with ensuring a culture of responsibility.
Image 26: Burberry Christmas 2014 Campaign
· A culture of continuous improvement in the design and execution of customer-facing initiatives and services · Online and in-store innovations which work together to create a seamless experience wherever customers encounter the brand
Image 27: Burberry Gift Bags
· Committed to sustainable business practices · Driving productivity through the effective use of technology and resources · A team-orientated approach, empowering a highly connected organisation 13
BURBERRY BUSINESS ANALYSIS The Triangular Model........................7 The Subject........................................16 The Object.........................................20 The Finance.......................................26
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BURBERRY BUSINESS ANALYSIS
THE TRIANGULAR MODEL The triangular model puts three different perspectives into relation the subject, the object and the finance.
THE SUBJECT The dimension of the subject is related to the culture and the people involved at Burberry. Burberry Culture.....................................................17 Board of Directors...................................................18 Working at Burberry...............................................19
THE OBJECT
THE FINANCE
The dimension of the object is related to the services and products offered by Burberry.
The dimension of the finance is related to the monetary aspects of Burberry.
Operating Model.....................................................21 Channel Mix............................................................22 Regional Mix...........................................................23 Product Mix............................................................24 Market Overview....................................................25
The Year 2012..........................................................27 The Year 2014..........................................................27 The Year 2016..........................................................28 Visual Comparison.................................................29
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BURBERRY BUSINESS ANALYSIS
BURBERRY CULTURE Build and nurture a culture that strengthens the brand through its purpose and values, globally.
Guided by its core values – Protect, Explore, Inspire – Burberry is dedicated to foster a distinct culture with a global team mindset and a pioneering spirit, underpinned by a commitment to responsibility. Key focus areas for 2015/16 included:
NURTURING AND REWARDING TALENT
INVESTING IN COMMUNITIES Burberry remains committed to support the communities where its employees live and work by giving financial support, employee time and inkind donations, with a particular focus on helping young people achieve their potential.
Burberry believes that its people are fundamental to the success of its business. The Company continued to focus on nurturing and rewarding teams, fostering a culture of recognition to support high performance and retention of talent.
DRIVING ENVIRONMENTAL SUSTAINABILITY
CONNECTING AND ENGAGING TEAMS GLOBALLY
Burberry is strongly committed to reduce its environmental impact globally through its supply chain and internal operations. Key targets were developed to reduce environmental impacts arising from materials, energy, water, chemicals and waste.
Burberry enhanced communications and ways of working, building stronger connections amongst global teams, and increasing engagement.
PROMOTING FAIR AND RESPONSIBLE EMPLOYMENT PRACTICES
EXTERNAL RECOGNITION
Burberry is committed to support diversity and equal opportunities within the Company, as well as to improve employment practices and working conditions at manufacturing sites.
Burberry was recognised externally for its sustainability performance and desirability as an employer.
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BURBERRY BUSINESS ANALYSIS
BOARD OF DIRECTORS The Board is collectively responsible for promoting Burberry’s long-term success, for setting its strategic aims and ensuring a framework of prudent and effective controls.
Back row: Ian Carter (Non-Executive Director), Carol Fairweather (Chief Financial Officer), Matthew Key (Non-Executive Director), John Smith (Chief Operating Officer), Philip Bowman (Non-Executive Director), Dame Carolyn McCall (Non-Executive Director) Front row: Jeremy Darroch (Non-Executive Director), Stephanie George (Non-Executive Director), Sir John Peace (Chairman), Christopher Bailey (Chief Creative and Chief Executive Officer), Fabiola Arredondo (Non-Executive Director)
Image 28: Board of Directors 2015/16
The Board currently consists of 11 members – the Chairman, the Chief Creative and Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and seven independent non-executive directors. It is supported in its activities by a number of committees including the following principal committees: Audit Committee; Nomination Com-
mittee; and Remuneration Committee. In addition to the relevant committee members and the Company Secretary, external advisers and, on occasion, other directors and members of the senior management team attend committee meetings but only at the invitation of the Chair of the relevant Committee.
Board
Nomination Committee
Remuneration Committee
Audit Committee
Chief Creative and Chief Executive Officer
Risk Committee
Senior Leadership Team
Global Health and Safety Committee
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Global Ethics Committee
BURBERRY BUSINESS ANALYSIS
WORKING AT BURBERRY With employees in 34 countries, representing over 112 different nationalities and spanning an age range of 16 to 74 years, Burberry is committed to support diversity, ensure equal opportunities and nurture and reward talent.
DIVERSITY
REWARD
Burberry strives to ensure that their processes for hiring, developing and promoting employees are fair and that women have the opportunity to be represented at every level of the organisation. As of 31 March 2016, out of their global employee population of 10,613, approximately 67% were fe-
Exceptional employee performance across retail, offices, manufacturing and distribution is celebrated through their annual Burberry Icon Awards. The Awards recognise employees’ contribution to the brand, business and culture and are streamed live on their internal communications platform.
male and 33% male, with women occupying 40% of senior management roles, including key roles on the Burberry Board.
In addition, Long Service Awards celebrate the loyalty and commitment of employees who reach milestone service anniversaries with Burberry, by offering additional employee benefits including vouchers and extra annual leave.
Supporting diversity within their business as well as society, in 2015 Burberry became a corporate member of OUTstanding, a UK not-for-profit professional network of lesbian, gay, bisexual and transgender executives.
TALENT With a focus on cultivating high-potential talent, their internal Leadership Council brings together approximately 50 employees from across the business for an 18 month leadership development programme including dedicated training, mentoring and networking opportunities. They also recently launched Burberry Apprentices, offering young people the opportunity to develop key skills, gain in-depth work experience and enhance their employability, while enriching Burberry‘s talent pool.
Empowering employees and promoting fair employment practices across their business has always been a key focus area. In April 2015, Burberry became the first luxury retailer and manufacturer to achieve accreditation as a UK Living Wage employer. They have since become a Principal Partner of the Living Wage Foundation, demonstrating Burberry‘s strong and on-going commitment to this initiative.
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BURBERRY BUSINESS ANALYSIS
OPERATING MODEL The business is structured by channel, region and product division, supported by corporate functions. to engage and connect the brand and its products with consumers. Burberry products are sold globally through its stores and online at Burberry.com, as well as through third-party wholesale customers, both offline and online. In a few selected areas, Burberry uses the product and distribution expertise of licensing partners. These activities are executed by a global
The Company designs, develops, makes and sells products under the Burberry brand. Product design and development are centred in Burberry’s London headquarters. Fabrics and other materials are bought from, and finished products manufactured at, both Company-owned facilities in the UK and through an external supplier network, predominantly located in Europe. Creative and marketing content and programmes are developed internally
team of almost 11,000 employees.
Business Model Design
Develop
Make
Sell
Function
Design and Creative Media
Product Development and Sourcing, Supply Chain, Merchandising and Planning
Marketing, Architecture, Customer Insight
People, Operations, Information Technology, Finance, Corporate Affairs Product
Accesories, Womens, Mens, Children, Beauty Region
Asia Pacific, EMEIA*, Americans Channel
Retail, Wholesale, Licensing
*Europe, Middle East, India and Africa.
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BURBERRY BUSINESS ANALYSIS
CHANNEL MIX Burberry sells its products through retail (online and offline) and wholesale channels. For 2015/16, retail accounted for 73% of revenue and wholesale for 25%. Burberry also has licensing agreements globally, leveraging the local and technical expertise of its licence partners.
REVENUE BY CHANNEL Licensing
REVENUE BY CHANNEL
£42M -33%
Wholesale
£635M
2% 25%
-2%
73% Retail
£1,838M +1%
RETAIL
WHOLESALE
LICENSING
Includes 215 mainline stores, 214 concessions within department stores, digital commerce and 58 outlets · 1% revenue growth · sales down 1% · 18 mainline store openings, including Tokyo, Seoul and New York flagships
Includes sales to department stores, multibrand specialty accounts, travel retail and franchisees who operate 62 Burberry stores, and Beauty to around 80 distributors globally · Revenue down 2%
Includes income from Burberry’s licensees, approximately 60% from Japan with the balance from global product licences (eyewear and watches) and the European wholesale childrens license · Revenue down 33% · £24m of income from Japan · Global product licenses increased but Japanese licenses expired
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BURBERRY BUSINESS ANALYSIS
REGIONAL MIX Burberry operates in three regions. For 2015/16, Asia Pacific represented 38% of retail/wholesale revenue, Europe, Middle East, India and Africa (‘EMEIA’) 35% and Americas 27%.
REVENUE BY REGION
35% 27%
38%
Americas
£661M
EMEIA
Mainline stores: 77 Concession stores: 9
£879M
Asia Pacific
£933M
Mainline stores: 63 Concession stores: 143
Mainline stores: 75 Concession stores: 62
AMERICAS
EMEIA
ASIA PACIFIC
· Revenue down 2% · Retail accounted for about 70% of revenue · Sales unchanged · Digital penetration in the USA showed good growth
· 5% revenue growth · Retail accounted for twothirds of revenue · Sales increased · About half of mainline sales were made to travelling luxury customers
· Revenue down 2% · Retail accounted for over 85% of revenue · Sales declined · Hong Kong impacted by a significant decline in footfall
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BURBERRY BUSINESS ANALYSIS
PRODUCT MIX Burberry has a diversified product offering across apparel, accessories and beauty. For 2015/16, accessories represented 36% of retail/wholesale revenue, womens 30%, mens 22%, childrens 4% and Beauty 8%.
REVENUE BY PRODUCT DIVISION Beauty
Childrens
£203M
£91M
+8%
+15%
4%
Mens
£548M
8% Accessories
22%
-2%
£902M 36%
+1%
30% Womens
£729M -2% ACCESSORIES · 1% revenue growth · Launching of Scarf Bar (online and in-store) · Scarves outperformed other accessories · New season runway rucksack saw good growth
WOMENS · Revenue declined by 2% · Outerwear hit by warm weather · New fashion category, dresses, saw good growth
MENS CHILDREN · Revenue down 2% · 15% revenue · Outerwear is growth about 40% of · Transition of menswear European childrenswear to direct operation · Taken direct control of ten childrenswear stores in Japan
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BEAUTY · 8% revenue growth · Building pillar fragrance of My Burberry with brand extensions · Successful launch of new male fragrance pillar, Mr. Burberry, in April 2016
BURBERRY BUSINESS ANALYSIS
MARKET OVERVIEW MACRO ENVIRONMENT Economic In the 2015 calendar year, the global economy grew by 3.1%, a slight deceleration versus 2014. Notable factors over the year were the slowdown of the Chinese economy, increased geopolitical concerns in the Middle East and Russia, and uncertainty in the Eurozone. In addition, commodity prices fell significantly during the year, notably oil, leading to low inflation in EMEIA and the US.
Channels Globally, the retail channel continued to outperform wholesale, and now accounts for 34% of luxury consumption. Digital commerce remained the fastest growing channel, up 22% at constant exchange rates. Key drivers of this digital commerce growth included the emergence of direct shopping on social platforms and the continued momentum of mobile commerce. Products
Socioeconomic and environmental The year was marked by a number of socioeconomic and environmental events including the migrant crisis in the Eurozone, geopolitical concerns in the Middle East, the terrorist attacks in Paris and Brussels, MERS epidemic in Korea and the El NiĂąo weather phenomenon which made 2015 one of the warmest years on record.
For the sector, accessories was the fastest growing product category, at 3% growth, with strong momentum from shoes and leather goods. The apparel category grew by 2%, with similar trends across both mens and womens. Beauty grew by 1% driven by increasing Chinese and Middle Eastern demand.
LUXURY SECTOR
In the long term, the luxury market should benefit from evolving global demographics, continued urbanisation, increased centralisation of wealth in global destination key cities, improving macro and socio-economic trends, strong luxury consumer travel flows and the continued increasing penetration of digital commerce.
Markets This challenging global backdrop had a significant impact on the performance of the luxury sector. At constant exchange rates, sector sales grew 1 to 2%, a slowdown versus the 3% growth experienced in 2014. The key drivers of sector growth were Japan and Europe, which grew at 9% and 5% at constant exchange rates respectively. In addition, the behaviours and preferences of luxury customers continued to evolve as they seek more experiences, newness, and story telling, as well as increased service-driven personalised contact in a time-efficient way.
OUTLOOK
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BURBERRY BUSINESS ANALYSIS
RECTANGULAR MODEL The rectangular model consists of two parts: the balance sheet and the income statement. The balance sheet consist out of assets on the left and liabilities and equity on the right side. The income statement, on the other hand, consists out of revenues on the top and expenses and profits on the bottom. This visual portray makes it easy to investigate and understand the economical status and financial success of an organisation. Revenue 1,857.2
Liabilities 719.2
Assets 1,610.6
2012 (in ÂŁm)
Equity 891.4
Expenses 1,592.1
Profit 265.1
Revenue 2,329.8
Liabilities 757.5
Assets 1,965.5
2014 (in ÂŁm)
Equity 1,208.0
Expenses 1,997.5 27
Profit 332.3
BURBERRY BUSINESS ANALYSIS Revenue 2,514.7
Liabilities 693.4
Assets 2,314.3
2016 (in £m)
Equity 1,620.9
Expenses 2,173.6
As mentioned before, 2015/16 has been a watershed year for the luxury sector – marked by a challenging global environment with the slowdown of the Chinese economy, increased geopolitical concerns in the Middle East and Russia, uncertainty in the Eurozone, currency volatility and a significant fall in commodity prices. All of these combined together to have a negative impact on the performance of the luxury sector as a whole, as demand slowed sharply in many of Burberry‘s key markets such as Hong Kong and Macau.
Profit 314.6
Given the shape of Burberry’s global footprint, these negative trends had a disproportionate impact on their business during the year, and this was reflected in their overall financial performance. Burberry has delivered 2015/16 revenues of £2.5bn and adjusted profit before tax of £421m (down 8% and 10% underlying respectively), in part impacted by a £19m decrease in licensing profit due to the planned expiry of their Japanese licences.
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BURBERRY BUSINESS ANALYSIS
VISUAL COMPARISON In the following, the three rectangles from the financial years 2012, 2014 and 2016 are put together to illustrate the differences between them.
2016 2014 2012
Examining and comparing the shapes of the three rectangles, shows that Burberry developed positively in financial aspects over the three years. The rectangles all remain of the same shape but grow bigger on all four sides every second year. Besides, Burberry aquires more assets each year which could be explained by investing in new equipment or more inventory in the wholesale part of the business.
that Burberry could maintain a stable financial background over the past four years. This is a very favourable position and guarantees a bright future for Burberry if it can ensure its consistent financial growth. Looking ahead to 2016/17, the challenging macro-economic environment will continue to impact the luxury sector. Against this background, Burberry needs to accelerate their productivity and efficiency initiatives to mitigate the impact of these challenges and to focus even more intensely on optimising their future revenue growth opportunities.
Clearly, Burberry is able to generate a great financial profit. This implies that Burberry is economically efficient, profitable and successful. All money numbers rose, which means 29
BURBERRY CORE STRATEGIES Future Growth.......................................31
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BURBERRY CORE STRATEGIES
DRIVING FUTURE GROWTH AND PRODUCTIVITY The Burberry brand is strong, driven by a blend of heritage and innovation, expressed through its iconic products and fashion newness. Looking ahead, there is opportunity to enhance this existing brand strength through greater consistency and clarity across customer groups and markets. In the following areas, significant growth opportunities across Burberry‘s existing channels, products and regions can be identified:
PRODUCT FOCUS From product breadth to product focus · Building a strategic approach to key categories · Reducing assortments · Greater visibility of fashion and newness Image 29: Buberry bag
PRODUCTIVE SPACE From new space to productive space · Increasing investment in training · Completing roll out of one label strategy · Implementing a new store profiling model · Rolling out net promoter score
Image 30: Burberry space
E-COMMERCE LEADERSHIP From digital prowess to E-Commerce leadership · Launching redesigned website · Developing customer app · Develop best-in-class relationships with retailers online · Innovating in social commerce
Image 31: Burberry website
OPERATIONAL EXCELLENCE Focusing on efficiency and investing appropriately · Simplifying processes · Implementing new technology solutions Image 32: Burberry packaging
INSPIRED PEOPLE Implementing new ways of working · Simplifying the organisation · Developing talent · Committed to sustainability Image 33: Burberry store
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REFERENCES · BURBERRY (2016): Annual Report 2015-16, http://www.burberryplc.com/documents/ar-15-16/ burberry_annual_report_2015-16.pdf. Available: 2016.12.22. · BURBERRY (2016): Annual Review 2015-16, http://www.burberryplc.com/documents/ar-15-16/ burberry_review_2015_16.pdf. Available: 2016.12.12. · BURBERRY (2016): Financial Statement 2015-16 http://www.burberryplc.com/documents/ar-1516/burberry_financial_statements_2015_16.pdf. Available: 2016.12.14. · BURBERRY (2016): Strategic Report 2015-16: http://www.burberryplc.com/documents/ar-15-16/ burberry_strategic_report_2015-16.pdf. Available: 2016.12.20. · BURBERRY GROUP PLC (2016): www.burberryplc.com. Available: 2016.12.22. · BURBERRY WEBSITE (2016): www.burberry.com. Available: 2016.12.21. · HARPER, C. Q. (2016): The Tale of Thomas Burberry, http://www.gq-magazine.co.uk/article/ta le-of-thomas-burberry. Available: 2016.12.22. · LEAHEY, C. (2014): Angela Ahrendts: The secrets behind Burberry’s growth, http://fortune. com/2012/06/19/angela-ahrendts-the-secrets-behind-burberrys-growth/. Available: 2016.12.22. · PARKER, A. J. (2013): This Week In Fashion History: Burberry, http://www.fashiontimes.com/ar ticles/834/20130917/week-fashion-history-burberry.htm. Available: 2016.12.20. · SHEPHER, J. (2016): Burberry Christmas advert: Lily James and Twitter want a full movie based on ‚The Tale of Thomas Burberry‘, http://www.independent.co.uk/arts-entertainment/films/news/ burberry-christmas-advert-lily-james-the-tale-of-thomas-burberry-film-a7400831.html. Available: 2016.12.14.
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