Burberry's Strategic Reentry to the FTSE 100: A Case Study in Luxury Brand Resilience and Investor Sentiment

The recent saga of Burberry’s removal from and anticipated reentry into the FTSE 100 index offers a compelling lens through which to examine the evolving dynamics of luxury brand valuation and investor sentiment in the post-pandemic era. After a 15-year stint in the UK’s blue-chip benchmark, Burberry was relegated to the FTSE 250 in September 2024 due to a 70% decline in its share price and a market capitalization that fell below the index’s threshold [2]. However, the brand’s resurgence—driven by a 70% rebound in its share price since July 2024—has positioned it for a potential return to the FTSE 100 in March 2025 [1]. This case study underscores broader shifts in how luxury brands are valued, the role of index inclusion in catalyzing investor confidence, and the strategic imperatives for re-rated luxury plays.

The Post-Pandemic Luxury Sector: A Tale of Two Phases

The luxury goods sector has experienced a dramatic bifurcation since the pandemic. From 2020 to 2023, the industry thrived on pent-up demand, supply constraints, and aggressive price hikes, with personal luxury goods growing at a 5% compound annual rate [1]. However, 2025 has brought a reckoning. Macroeconomic headwinds, including reduced discretionary spending in China and the U.S., have tempered growth, while shifting consumer preferences—toward experiential luxury (e.g., curated travel, bespoke art) over physical goods—have forced brands to recalibrate [3].

Burberry’s struggles epitomize these challenges. Its overreach into mass-market fashion and underinvestment in core leather goods eroded its premium positioning [2]. Yet, its recovery highlights a critical insight: brands that pivot to balance heritage with innovation can reignite investor interest. Under CEO Joshua Schulman, Burberry has embraced cost-cutting, refocused on iconic products like its trench coats and scarves, and tied executive compensation to a 300% bonus if the company re-enters the FTSE 100 [2]. This alignment of incentives has signaled to markets that the company is serious about restoring its value proposition.

The FTSE 100 Effect: Index Inclusion as a Catalyst

Historically, inclusion in the FTSE 100 has acted as a self-fulfilling prophecy for UK companies. A study of index changes found that stocks anticipating inclusion often see cumulative excess returns rise by 9% in the nine days preceding the official announcement [4]. This “index effect” is rooted in institutional buying pressure and renewed visibility, which can amplify a company’s market capitalization. For Burberry, reentry would not only restore its blue-chip status but also increase its weighting in the index, potentially attracting passive and active investors seeking exposure to the UK’s largest firms.

The broader luxury sector has also benefited from FTSE 100 inclusion. LVMH and Hermès, for instance, have leveraged their positions in global indices to maintain high EBIT margins (42.86% for Hermès in early 2025) [5]. These brands have mastered the art of balancing exclusivity with scalability, a lesson Burberry is now trying to replicate. The key difference lies in execution: while LVMH’s diversified portfolio of 75 brands provides stability, Burberry’s recent focus on core products and digital engagement represents a more concentrated but high-impact strategy [5].

Investor Sentiment and the Road Ahead

The luxury sector’s post-pandemic trajectory reveals a nuanced investor sentiment. While demand for physical goods has softened, digital transformation has opened new avenues. Online sales in the luxury sector are projected to reach 18.2% of total revenue by 2027, up from 10.3% in 2018 [5]. Burberry’s aggressive digital push—enhanced by its recent 18.2% online sales growth—positions it to capitalize on this trend. However, the brand must navigate the delicate balance between price increases and perceived value. Chinese consumers, for example, remain less price-sensitive than their U.S. counterparts, prioritizing exclusivity over cost [3].

For investors, Burberry’s reentry into the FTSE 100 could serve as a bellwether for the sector’s recovery. If successful, it would validate the thesis that well-managed luxury brands can outperform even in macroeconomic downturns. The FTSE 100’s historical annualized return of 8% since 1984 [1] suggests that inclusion could amplify Burberry’s long-term gains, particularly if it continues to outperform the index’s average.

Actionable Insights for Investors

1. Prioritize Brands with Adaptive Leadership: Burberry’s CEO incentive structure demonstrates how aligning executive goals with shareholder value can drive recovery. Investors should monitor other luxury brands with similar governance frameworks.
2. Focus on Digital and Regional Resilience: Brands that have successfully expanded into high-growth markets (e.g., India) and optimized digital channels are better positioned to weather cyclical downturns [3].
3. Assess Index Inclusion Timelines: Companies on the cusp of FTSE 100 reentry, like Burberry, may offer asymmetric upside potential. Track quarterly index reviews and market cap thresholds.
4. Balance Short-Term Volatility with Long-Term Trends: While the luxury sector faces near-term headwinds, its cyclical nature suggests a rebound is likely within 12–24 months [2].

Conclusion

Burberry’s potential reentry into the FTSE 100 is more than a corporate milestone—it is a microcosm of the luxury sector’s broader evolution. As consumer preferences shift and digital channels mature, the ability to blend heritage with innovation will determine which brands thrive. For investors, the lesson is clear: re-rated luxury plays, when backed by strategic clarity and strong execution, can deliver outsized returns even in uncertain markets.

Source:
[1] The ups and downs of the FTSE 100 40-year history [https://arcuswealth.co.uk/the-ups-and-downs-of-the-ftse-100-40-year-history-demonstrates-time-in-the-market-matters/]
[2] Burberry Has Been Booted Out of the FTSE 100. Can it ... [https://global.morningstar.com/en-gb/stocks/burberry-has-been-booted-out-of-the-ftse-100-can-it-return]
[3] Luxury study: Insights into luxury industry trends [https://www.simon-kucher.com/en/insights/luxury-study-insights-luxury-industry-trends]
[4] Changes in FTSE 100 Index and Shareholders' Returns [https://www.researchgate.net/publication/360284388_Changes_in_FTSE_100_Index_and_Shareholders'_Returns]
[5] The State of luxury goods in 2025 [https://www.mckinsey.com/industries/retail/our-insights/state-of-luxury]