Burberry's FTSE relegation confirms a long fall from grace for the luxury fashion icon

LONDON — British luxury fashion house Burberry Group dropped out of the U.K.’s FTSE 100 stock market index on Wednesday, as waning sales and a slew of management changes have added to the mounting pressures facing the 168-year-old retailer.

The company slipped into the FTSE 250 during September’s quarterly rebalancing, index provider FTSE Russell said in a statement, bringing its 15-year run in the U.K. large-cap FTSE 100 blue-chip index to a close.

The changes will be implemented at the close of trade on Sept. 20 and will take effect from Sept. 23.

The relegation deals a fresh blow to Burberry, whose share price has suffered a precipitous decline over recent months as the brand has fallen out of favor with consumers amid a wider slowdown in the luxury market.

The stock is down more than 53% so far this year and around 70% lower over the last 12 months.

The company’s current market cap of £2.34 billion ($3.06 billion) now puts it well below the other constituents of the FTSE 100, as well as some of the top performers in the FTSE 250. As such, funds that invest in the FTSE 100 will exit their Burberry holdings.

The luxury label’s addition to the FTSE 100 in September 2009 was taken as a further mark of its enduring appeal and its resilience, even amid the global financial crisis.

However, the gradual adoption of Burberry’s iconic pattern by the British working class through the 1990s and 2000s dealt a heavy blow to the brand’s high-end aesthetic — one from which it has struggled to recover.

Successive CEOs have attempted to revive the company’s image and elevate it to an upmarket brand, but the market has not been convinced. High turnover at the top leadership levels — with four CEOs taking the post in the last decade — has also left investors jittery.

The appointment of Joshua Schulman as CEO in July now suggests a change in direction.

Luca Solca, managing director and sector head of global luxury goods at Bernstein, said that the former Coach and Michael Kors CEO could attempt to revive the company’s fortunes by shifting the focus from brand elevation to a “British Coach” strategy. That would include reducing costs, doubling down on outlets and increasing exposure to off-price retailers.

“We have advocated a ‘British Coach’ strategy. The appointment of Josh Schulman, a former CEO of MK and Coach, seems to go in this very direction,” Solca told CNBC by email.

According to Bernstein estimates, the fresh approach could provide a much-needed boost to the company’s struggling financials. Burberry reported a 21% fall in first-quarter comparable store sales in July, prompting it to issue its third profit warning in 12 months and suspend its dividend payments

Analysts are now warning that further share price declines could be expected in the absence of a significant reset. “Current trading trends point to soft brand momentum for the Burberry brand which in our view needs to be addressed soon enough for Burberry to contain any further market share losses,” RBC analysts Piral Dadhania and Richard Chamberlain wrote in a July note.

That, according to Solca, could make the company a takeover target. If, however, the leadership changes work and the share price revives, he said, “the probability of a takeover decreases.”

Schulman is due to give an update on his strategy in November, and further change could be expected at the top before that time. The fashion brand is now reportedly working with headhunters to replace its chairman, Gerry Murphy, according to Sky News.

Burberry did not immediately respond to CNBC’s request for comment on the report.

Cole Smead, CEO of Smead Capital Management, suggested that Schulman could assume the chairmanship, too, to allow him to proceed quickly with his strategy and restore investor confidence. Such a practice is uncommon in U.K. firms, but relatively normal in the U.S.

“It’s a waste of time for the board to go out and search for the right chairman, when there are real needs to focus on with Mr. Schulman in his endeavor for shareholders,” Smead, who is an investor in Burberry, said by email. In a separate note, he suggested that the entire board be overhauled to reassure investors.

Burberry is not alone in its waning fortunes. The luxury sector as a whole has suffered from a prolonged downturn in consumer spending amid inflationary pressures and broader economic uncertainty. Chinese luxury consumption has been especially hard hit.

In July, Hugo Boss cut its full-year guidance after reporting a fall in sales, notably in the U.K. and China, while Gucci owner Kering issued a weak forecast, as a “marked deceleration in China” weighed on first-half revenue. LVMH revenue also fell in the second quarter on weaker sales in Asia, excluding Japan.

Certain players, primarily those in the ultraluxe space, have managed to weather the storm. Cartier owner Richemont reported record full-year sales in May, while Hermes sale were up 13% in the second quarter.

Smead said that the slowdown demonstrated the cyclical nature of the luxury sector — an often overlooked factor — but also showed the ongoing opportunities for Burberry to recover.

“The old saying is if you’re going to get behind, get behind early. Burberry got behind early and we believe they will deal with their real problems sooner than the other luxury players,” he said.

Smead added that he expects the company will ultimately return to the FTSE 100, but that fresh leadership was unlikely to reinstate its large dividend given “lack of foresight” over earlier payments.

Burberry’s half-year financial results are due out on Nov. 14.