The current situation of the British luxury brand Burberry vividly illustrates how painful it can be to sit between two chairs.

Here's the translation of the heading to English:

"How to Create a Desirable Luxury Brand? Clearly Not by Drastically Increasing Prices in a Deteriorating Market Environment. Burberry Has Found That This Neither Attracts the Super-Rich Nor Draws Core Customers Into Stores. Under New CEO Joshua Schulman, the Company Might Do Well to Rethink This Strategy.

Schulman, who comes from the luxury brands Coach and Michael Kors, faces a monumental challenge. His appointment was announced simultaneously with a renewed profit warning. Burberry – traditionally known for its iconic, check-lined raincoats – has pursued a fashion-oriented high-price strategy to improve retail productivity, margins, and return on capital. However, this move towards a more sophisticated aesthetic has not yielded the desired results.

The comparable store sales fell by 21 percent in the quarter ending June 2024. The group now expects a loss in the first half and has suspended the dividend. Although the luxury purchasing power has weakened, this has not harmed upscale Italian brands like Brunello Cucinelli, which reported a 12 percent increase in sales in the same quarter.

This is not a one-time blunder. The company's recent turnaround is struggling to gain momentum. In fact, Burberry has been trying for decades to establish itself in the high-end market segment. However, the shares, which fell by more than 16 percent on Monday, are now below their value from July 2010.

The strategy of Burberry has probably surpassed its peak. The brand elevation was never an easy sell for the company, which originates from the solid mid-range segment and has no prestige in high-margin leather goods. Given the rapid price increases, this becomes even more difficult. For instance, Burberry’s new handbag collection is estimated to be on average 58 percent more expensive than previous models, according to Luca Solca of Bernstein. This was followed by significant price reductions.

The company plans to optimize its strategy rather than abandon it completely. The hope is that by balancing supply and pricing and focusing on well-known outerwear, traditional fans can be regained without completely giving up on lofty goals. This dual strategy is understandable. The luxury group LVMH is valued at 23 times the expected earnings for 2024. The parent company of Coach, Tapestry, which targets less affluent customers, is valued at less than half of that.

However, Burberry's current situation shows how painful it can be to be caught between two segments. Schulman might find that a more decisive course correction is necessary.