Good morning. Welcome to Horsberry House, and thank you very, very much for joining us to hear more about Burberry's first half performance. If I may, I'll start this morning by outlining a few thoughts on what's been driving another strong set of results and what this means for the future before handing over to other members of the team. As usual, Carol Fairweather, our CFO, will take you through the details on the numbers, after which John Smith, our COO, will talk about how we weave digital innovation through everything we do, how integrated this is to our culture and why we see this as a continued differentiator. Finally, and as part of my commitment to introducing you to the broader senior team, we'll hear from Donald Kola, our Chief Merchandising Operations Officer, who has done a magnificent job building our planning and business intelligence functions over the past 6 years.
Donald will give an overview of how we're driving productivity through product related activities consistent with our broader focus on this area, which I will talk more about shortly. Additionally, as you can see, we've also relooked at the format of today's meeting in the same spirit and a few members of the senior team are seated at your tables so that you have an opportunity to meet them. Following the presentations, we will have a Q and A session, which I will share. Carol, John, Donald and myself will be happy to take questions. And with that, I will turn to the highlights.
With underlying increases of 14% in revenue and 6% in adjusted profit, Burberry had another strong start to the year. We are particularly proud of this performance against the backdrop of a more difficult external environment, which has been felt across the sector. In this context, we continue to focus on the things that we can control. The double digit underlying growth delivered by all regions and our 3 main product divisions clearly demonstrates how our teams have delivered against this objective in the half. And we will remain absolutely focused on optimizing what we can influence during the rest of the year, confident in the underlying health of the business and in the momentum of the brand.
Underpinning our performance is a dynamic strategic agenda and a business with solid foundations but with an agile mindset. When we met in May, I talked about this idea of stability and evolution going hand in hand and how it will define our next chapter. It's an idea that goes right to the heart of who we are, staying true to our roots whilst continuously innovating and moving forward. Our strategic thinking reflects this approach every bit as much as the way in which we marry tradition to innovation in our products and in our brand. I'll set out in a moment how our strategic agenda for the coming years is evolving.
But first, I should start with the principles that guide us and underpin everything that we do. An overview of both is included in your packs. The first of these principles we call brand first. We will always be led by the brand, and every decision we make will be in its best long term sustainable interests. The second is that we should be famous for product.
We will celebrate our authentic, distinctive products as forcefully and innovatively as we do our brand. The third is that we should always remain customer centric, focusing with absolute determination on putting our customers at the center of everything we do and recognizing our ambition to lead the sector in how we understand, respect, engage and serve them both on and offline. The final principle is that we should be both productive and responsible, meaning that we will put ever greater emphasis on productive, efficient and responsible ways of working across the whole organization. To deliver against these principles, we are evolving the 5 core strategies that will be familiar to you all with some important shifts in emphasis to better express the shape and the scope of our future ambitions. The strategy that we've been calling leverage the franchise becomes inspire with the brand.
To express more clearly our determination that Burberry speaks to the consumer with one equally inspiring and authentic brand voice wherever they encounter us. To achieve this, we intend to focus, amongst other things, on more extensive utilization of data and insight, greater emphasis on brand consistency and continued innovation at the intersection of our physical and our digital worlds. The strategy we've called Intensify Accessories is being broadened out and renamed Realize Product Potential. Our focused attention on accessories in recent years has taken this category to 36% of retail wholesale sales from 29% in 2,006. And we now have great balance in our product mix and growth drivers across all categories.
Accessories will remain an important future growth driver as we reinforce our dominant position in soft accessories such as scarves and further develop our bags and small leather goods. Other areas of focus will include underdeveloped product categories such as shoes alongside continued opportunity in all areas of men's and of course the development of beauty. Accelerate retail led growth becomes optimized channels. We have successfully shifted the shape of our operating model towards the retail channel, which represented 70% of sales last year from 43% in 2,006. Now with our retail wholesale mix broadly where we would like it, it's time to broaden out this strategy to focus on improving and optimizing all routes to market, both physical and digital.
This will include significant opportunities in elevated wholesale and third party digital relationships as well as exciting initiatives to enhance retail productivity, some of which Donald will touch on in his presentation. Invest in underpenetrated markets becomes unlock market opportunity. To articulate more clearly the rich potential to further evolve Burberry's footprint and positioning in both developed and younger markets. Future opportunities for the brand in China and Japan are, of course, an important part of this. And I was pleased to see firsthand the excellent preparations our teams are making for the Japan transition on a visit to the market a few weeks ago.
Other areas of geographic focus will include the ambitious development of our travel strategy and the continued elevation of our business in the U. S, where the recent openings of our Rodeo Drive and Post Street flagships in LA and San Francisco are great examples of our vision for the brand. The final core strategy, operational excellence, remains unchanged, but its scope is expanded to encompass our efforts to drive greater efficiency and productivity throughout the business in addition to its historic emphasis on improving our back of house operations. What we call the productivity agenda spanning opportunities in retail, product and processes, is an area in which we have further significant opportunities and will be the subject of intense focus for this next phase as we leverage the investments that we have made in recent years. In my mind, the evolution of our 5 core strategies and the success with which we deliver against them is As such, it As such, it is our fierce determination that our next phase should be characterized by this culture that is more authentic than ever, by behaviors that truly reflect our values and by a genuinely responsible mindset.
We will continue to prioritize and invest in these human areas because just as with all of our core strategies, they will make us thrive and grow as a business in a healthy and sustainable way long into the future as Biffids our historic brand. And they will generate real added value for our teams, shareholders, customers and the communities in which we live and operate. I look forward to updating you more fully on all of this in the coming months. On that note, I will conclude with a few reflections on the first half and the festive periods ahead. A clear highlight of the half was, of course, the introduction of My Burberry.
Much, much more than just a fragrance launch, this demonstrated the best of the brand and the way we work, bringing our unique blend of heritage and innovation to life through great product, dynamic marketing and outstanding retail and wholesale execution, both on and off line. There has been an excellent early performance in both retail and wholesale globally, a major moment in the development of our beauty business. It reconfirms our ambitions for and confidence in the potential for our brand in this category. The September release of My Burberry was synchronized with the relaunch of our British made heritage trench coat and cashmere scarves. As I talked about in May, this new program gives customers a much more focused offer, which tells a clear story about the iconic products that sit at the core of our business globally.
After a successful initial test in 30 stores and online, we have now rolled the program out to 200 stores and continue to be pleased with its early performance. Both My Burberry and the heritage program were linked to the rollout of our monogramming offer, a new service allowing customers to have their initials embroidered onto scarves and engraved onto fragrance bottles, reflecting our broader focus on greater personalizations in products and services. Again, early results from this program have been encouraging with high levels of engagement, which we expect to build strongly as we enter the festive periods ahead. The 3rd product in our monogram offer, this season's runway poncho, was a standout performer, generating unprecedented levels of consumer and media interest. Finally, I would highlight how we continue to use digital to connect our business and enhance the customer experience in the half.
John will talk more about how our integrated approach in this area continues to set us apart with initiatives including the expansion of our collect in store service, the upgrading of our mobile platform and the ongoing development of third party relationships, giving us real confidence for the future. As consumer behaviors continue to evolve, we remain convinced that a determined and unique focus on making digital integral to everything we do will be a key growth driver and source of competitive advantage. The success of these initiatives alongside the performance of the business as a whole positions us well for the future and provides a great foundation from which to optimize the critical festive trading periods ahead. Last week, we launched our festive campaign featuring Romeo Beckham, which drove record engagement levels for the brand across traditional and social media. The launch marks the start of our festive season and the culmination of many months of our teams around the world working together on initiatives that span every dimension of what we do, from design and manufacturing to marketing and, of course, retail.
We have designed great product with an enhanced gifting focus across all categories. We have developed emotive, innovative marketing both on and offline, built around the theme of Burberry with Love. We have created service initiatives that merge physical and digital to make the customer experience easier and more engaging than ever. And we have set in place robust systems and planning to ensure that we can consistently deliver. And of course, we are just as prepared for Lunar New Year given the importance of the Chinese customer to our business.
This is now a celebration that we approach with equal focus and creativity. As we enter this crucial trading period, we are naturally mindful of the external uncertainties that face the sector as a whole. However, as we constantly challenge ourselves to build on previous year's lessons and to bring the best of the brand to the customer at this time, we believe we are better positioned than ever in terms of our internal planning and readiness to execute. With that, before handing over to Carol, I would like to leave you with a short video that I hope brings to life some highlights from the first half and help frame our ambition for the future. This is for the team that I work with, all the peoples that I collaborate with.
Good morning. It gives me great pleasure to present the results for the first half, where we have again seen strong revenue and profit growth. As Christopher referenced, revenue was up 14% underlying and adjusted profit before tax at £152,000,000 was up 6% underlying. We continued to be strongly cash generative closing the half with a net cash position of £307,000,000 up from £208,000,000 last year. And I proposed a 10% increase in the half year dividend to 9.7p given our policy to move progressively to a 50% payout ratio.
Before I review the half, let me just say a few words on exchange rates, which as you have seen have had a material impact on the reported numbers in the period, reducing revenue by £75,000,000 and adjusted profit before tax by £31,000,000 turning 6% underlying growth into 12% decline at reported FX. As we look forward to the second half of the year and at current exchange rates, we do not expect FX to have a material impact on retail wholesale profit. Turning now to revenue. Given that we've already reported on this last month, I will only briefly summarize our performance. We increased revenue by 14% underlying to GBP 1,100,000,000 Growth was led by retail, up 15% underlying with comparable sales up 10% underpinned by the investments we have made in recent years in brand, retail, digital and customer service.
Excluding beauty, wholesale was up 5% underlying, reflecting growth in areas such as Asia travel retail, partly offset by continued account rationalization as we upgrade our presence in Europe and the United States. Beauty wholesale was up 55% underlying consistent with our full year guidance of up about 25% helped by the successful launch of My Burberry, which Christopher has just spoken about. And finally, licensing was down 3% underlying. Our plans for the transition in Japan from license to retail remained firmly on track. We saw double digit growth in all regions and in our 3 product divisions, a testament to the strength of the brand and the business.
This slide clearly demonstrates the material impact that exchange rates have had on reported profits. We are pleased with the 6 percent underlying growth in adjusted operating profit, which reached £152,000,000 driven by an underlying £11,000,000 or 8 percent increase from our retail wholesale business. So looking at these numbers in greater detail. This slide shows the bridge between the first half last year and this year for operating profit and margin. You can see both the significant adverse impact that exchange rates have had of £25,000,000 and the underlying increase in operating profit of £11,000,000 And you can also see operating profit operating margin in the first half last year was 13.9% reported.
The impact of FX is about 140 basis points reflecting the imbalance between where we generate revenue and where we incur costs. Excluding this, the first half margin declined by about 80 basis points. And these two factors together led to a reported margin of 11.7%. So looking at the retail wholesale P and L, gross margin was 67.7 percent down 150 basis points. Inevitably exchange rate movements were a large part of this.
The majority of the underlying change was due to a one off inventory cost relating to execution around the Brit Rhythm for Women Fragrance launched in February 2014. As you know, we accelerated the launch into last year, but at that point we did not have the full visibility of distributor forecasts or inventory planning that we now have. This led to some excess inventory including finished goods, components and point of sale material for this particular launch. Clearly, we learned from this and were much better prepared for the launch of My Burberry. And finally, the first half margin was impacted by a number of other small factors including the weighting of beauty within the overall product mix.
Looking at operating expense to sales ratio, this was 56%, up 70 basis points compared to the first half last year. This again reflected the adverse impact of exchange rate movements, which more than offset the modest benefit seen from operating leverage and tight control of costs in the half. Looking at the absolute increase in OpEx, over half came from investment in new space and marketing with the balance from general inflation, volume related and people costs. Turning to the full year margin and as we said to you at the trading update in October, we do expect some downward pressure on the retail wholesale margin in the full year, reflecting the negative impact of exchange rates, a more difficult external environment and continued investment across the business in key initiatives such as flagship markets, customer service, digital and people to drive long term profitable growth. But our aim is absolutely unchanged continuing to invest to deliver sustainable revenue and profit growth in pounds 1,000,000 while securing ongoing margin progression over time.
On licensing, profit for the half was £28,000,000 down £8,000,000 due largely to a £7,000,000 negative impact from exchange rates, mainly reflecting the movement in the effective yen rate from £1.29 to £1.57 to the pound. And we still expect the FX impact for the full year to be around £10,000,000 Working down the income statement, we had £100,000 of finance income in the half and would expect it to be around the same level in the second half. The adjusting items of £10,500,000 comprises 2 things, the £7,500,000 amortization of the fragrance and beauty intangible, which will be £15,000,000 in the full year and a £3,000,000 charge relating to the China put option where there is a call option in 2015 and a put in 2020 over the 15% economic interest in the Chinese business not held by us. The tax charge of £33,000,000 reflects our estimated effective tax rate on adjusted PBT for the full year of 23%, against the 24.7% achieved in 2013 2014 largely reflecting the reduction in the U. K.
Corporation tax rate. And finally, the non controlling interest of £4,000,000 reflects profits in China and the Middle East. Our business remains strongly cash generative with £149,000,000 of cash flow from operations, up 5% from the £142,000,000 last year. Depreciation was £59,000,000 and we now expect to charge around £130,000,000 for the full year. The working capital outflow at £79,000,000 was £30,000,000 better than last year.
Remember that last year included a one off step up associated with beauty. And you will hear from Donald later this morning on how we are focused on optimizing inventory going forward, leveraging past investment in planning and product teams and processes. Translating that operating cash flow to net cash, capital expenditure was £73,000,000 of which retail was about 70% with a weighting towards flagship markets including a new store opening last week on Rodeo Drive, the renovation of our San Francisco store and the expansion of our store in Milan. We continue to expect that our CapEx will be around £200,000,000 for the full year. We've spent in the second half on major projects including Omotesando in Tokyo which opens in December and other projects including Shinjuku and Osaka in Japan and the Korean flagship, which are due to open next financial year.
Tax, dividends and other outflows totaled £172,000,000 so we finished the half with net cash of £307,000,000 about £100,000,000 more than this time last year. As you know, the Board keeps our capital structure under review and feels that our net cash position, especially when adjusting for operating leases is currently appropriate given the growth and investment plans ahead. And the slide in your pack highlights our usual guidance for 2015. So to close, we are pleased with the momentum in the brand and the business. We finished the half with a strong financial position.
We are more mindful of the more difficult external environment, but the evolving strategies that Christopher and the entire team are executing are unchanged and will underpin our goal of driving long term profitable growth, always doing what is best for the brand whilst retaining tight financial discipline. So thank you very much. And I will now hand over to John.
Thank you, Carol, and good morning. These are just some of the many recent examples of Burberry's innovations in the world of digital, showing how Burberry has become known for being a leader in the digital space. And as Christopher said in his introduction, digital is a clear point of differentiation for Burberry and a key driver of superior revenue growth. So this morning, I will explain our approach to digital and how we intend to sustain this leadership position through continued investment in an environment where the technology itself and consumer behavior are both evolving rapidly. First, let me put digital into context within the luxury sector.
The global e commerce market in 2013 was estimated to be $1,200,000,000,000 representing about 10% of retail sales and is expected to almost double by 2018. And in terms of luxury goods, Bain Altagamma estimate that online accounts for about 5% or €10,000,000,000 growing at over 25% versus general luxury sector growth of 5%. Digital for us starts with our strategy of inspiring with the brand ensuring that we engage customers with a consistent brand story wherever and whenever they encounter us. All our marketing is both physical and highly digital, designed to tell that brand story to digital users, but also to broaden our reach to get as many of our target customers to be aware of the Burberry brand and to start their customer journey. Our digital marketing includes in owned media many connections through social media platforms such as WeChat, Twitter, Vine, plus our own art of the trench through bought media, banner ads and paid search and via earned media with PR launches always having a strong digital component.
And we see high levels of awareness and engagement from this. We have about 18,000,000 Facebook fans and 3,000,000 Twitter followers. And in the 1st week following the launch of our festive campaign, which Christopher talked about, the film had about 5,000,000 views across Facebook and YouTube. Because our marketing is both online and offline, any customer's first exposure to Burberry can be physical, e. G.
Via a magazine or a billboard or by going into a store or it can be digital on a social network on bovary.com or maybe through a blogger. After becoming brand aware from that point on, we want as many people as possible to go on to become satisfied customers. So our approach very simply is 1, to manage the whole customer journey end to end as summarized on this slide and 2, because each stage of their journey can be made either online or line to offer the same brand experience and customer service everywhere on all platforms, through all channels and in all stores. We know that customers frequently move seamlessly between the digital and physical worlds and research is now showing that more than 50% of all purchase journeys have at some point had a digital step along the way. We have nearly 500 stores globally, but roughly double the number of people visit berbury.com as go into any of our mainline stores.
Berbury.com is therefore our largest store by traffic, but also by sales. So fundamentally, the landing page is the biggest brand statement we can make. So it's vitally important that it looks and feels like the Burberry brand. We recruited an internal creative media team some time ago and that team now produces all the huge volume of video, advertising, music and beautiful imagery for all our physical and digital touch points including of course everything on berbury.com. For several years sales associates in stores have been equipped with iPads.
They can use burberry.com to order an item, size or color not currently in stock in that store. And because we've invested in fulfillment, have any item delivered next day in key flagship destinations. To illustrate how customers move seamlessly between channels, over 25% of all sales on berbry.com are made through iPads and over 20% of digital sales are collected by customers in one of our 140 stores equipped to take digital deliveries. This gives us of course an additional opportunity to sell products. Our stores are equipped with myriad digital screens, Wi Fi and in some flagships RFID technology.
All of this blurring of physical and digital is why we regard our digital strategy as symbiotic with our physical strategy. As we look into the future, we believe that having a significant store presence and having an expanding digital footprint are equally essential, but they must both work in harmony with each other allowing customers to choose when, where and how they wish to encounter the brand and to buy. Through data analytics, we're also learning a lot about our customers. In addition to the core luxury customer, the millennial consumer is also a significant segment for Burberry. These shoppers are around 20 years younger than the traditional luxury customer And they're people who run much of their lives via apps and are rarely parted from their smartphones.
For them, buying a Burberry product in say our Regent Street store is as much a technology experience as it is a product experience. Over half of visitors to burberry. Com are new. So the site is a good recruitment tool into the brand. About 35% of our digital customers are male.
Around 60% of our digital customers are under 35. And by product category, the penetration of ProSEM, shoes and childrenswear is higher online than offline. We've spoken to you before about our customer one to one tool loaded onto the iPads which displays all previous purchases each customer has made anywhere in the world enabling an intelligent conversation with that customer about what might match it. The tool is particularly valuable for our private clients team, which now numbers nearly 150 people. We've more recently begun an active customer value management program where we segment our customer database and can now tailor for our most valuable customers how best to contact them and develop personalized service propositions that they are most likely to respond to such as special events in store.
Since we launched the program in June, we found that customers contacted with a personalized and meaningful message are 20% more likely to come back and tend to spend 30% more than others. This program is now being rolled out to over 300 stores and covers 90% of our top customers. And it's an example of how past investments in people and technology are now paying off and supporting our growth. Now the final step in any customer's journey is of course to take delivery of the product. 2 years ago, we aimed to fulfill sales made on berbry.com within 2 working days.
Now in London, as an example, we undertake to deliver any orders placed by 7 p. M. For next day delivery free of charge. And during the festive period, that will be extended to midnight for collect in store. And we're also currently trialing same day collect in store in New York.
And later this year, as Donald will explain, we'll create our 1st virtual single pool of inventory in China giving our customers visibility and access to all the stock we have there both in our Chinese stores and in our fulfillment center. In line with our strategic focus on optimizing all channels and as far as we can see into the future, we will continue to invest in physical stores as well as all aspects of the digital journey including spending on bovary.com, payment systems, data analytics, CVM tools and so on. In recent weeks, we've seen the upgrade of our mobile site to ensure that bovary.com looks as great and is as easy to shop on all devices globally, no matter what the operating system or screen size, and we've seen conversion grow since launch. We've been testing different mobile points of sale systems in our stores. A revised taxonomy went live in the half.
We invested in search engine optimization and now in browser optimization and in better customer service with about 100 people in 4 call centers handling about 1,000,000 contacts 20 fourseven through telephone, messaging and click to chat or call. We now know that our digital strategies are significantly contributing to our comps. And revenue via berbry.com this year will be nearly fourfold the figure it was less than 3 years ago. But the growth of digital will not, we believe, have any material effect in the near term on our store investment plans nor on our overall spend on CapEx nor on our margins. Digital is simply a fully integral part of doing business in a modern digitally enabled world.
Now wildburbury.com is the centerpiece of our digital strategy around the edges and growing fast are our many emerging digital relationships with 3rd party technology partners. We have, of course, had for years close online and offline relationships with great department stores such as Saks or Bloomingdale's and the wholesale relationship with Net A Porter. More recent are our commercial relationships with technology giants like Amazon, Tmall and Twitter. Seeing a great opportunity to bring more customers into the journey and do that in a luxury environment, we approached these players to see how we could achieve our goals of maximizing the 3 Rs reach, revenue and reputation. Reach as this slide shows, these giant platforms naturally reach many more people than are likely to come to berbry.com.
Revenue all of the deals that we've struck so far and the many currently in negotiation are designed to drive revenue growth of course. But most important of all is reputation. This is perhaps illustrated best by the example of the Alibaba platform Tmall. We suggested to them that we operate a digital concession offering an edited range of apparel and accessories using our creative input and our imagery. This was crucial for brand positioning in the important Chinese market and especially on the Alibaba platforms which have over 300,000,000 active users and can be the Chinese city might have of our brand.
We now sell more product on Tmall than we do directly on burberry.com in China. But just as importantly, Tmall at our request also took down all listings by unauthorized distributors of Burberry product on their site. That on their site sorry. So that Burberry items are now being sold by us with the right brand positioning as we merchandise and operate the site as a concession. And finally, at our recent runway show, we were proud to pioneer for Twitter, a trial allowing customers to click to buy nail polish directly from within a tweet the minute it appeared on the runway.
Whilst initially only a small product offering and in the U. S. Only, we see this as a very important development for the future as the world of social commerce begins to supplement that of digital commerce. So digital innovation in Burberry is pervasive. It can manifest itself in social networks, on our website, in store, in the use of devices right the way through the digital value chain.
This is because under Christopher's leadership, Burberry has within the company a large number of digitally savvy people. In all departments and across the company, there is digital strength in-depth, whether in IT, creative media, marketing, supply chain or the private clients teams. Burberry can act like a media company or tech company as much as it can a luxury fashion house. Basically, digital is a fully integrated part of the way we do business. It is simply part of the company's DNA.
Digital is not treated as a stand alone business nor a separate channel. It is part of every strategy, part of the performance of every store, every region and every marketing campaign. So I hope this morning I've given you a flavor of how Burberry's digital strategy works, how it's a key driver of comps and that we will continue to invest behind it. We manage a customer journey. We invest in each stage of that journey and we make online synonymous with offline.
We believe our approach will continue to be a source of sustainable competitive advantage and that we can maintain it because the culture of the company is digital. Thank you very much for your attention. And now let me please hand over to Donald who will talk about driving productivity.
Thank you, John. Good morning, everyone. In his introduction, Christopher spoke about our focus as a business on driving productivity, and I'm delighted to be here today to talk to you about what that means for our global product teams. By way of background, I'm a member of Christopher's senior leadership team and also Chair of our Commercial Committee. I joined Burberry in 2,008 to create a central corporate planning function, overseeing all aspects of global product planning and analysis.
The timing was perfect as we were just completing the implementation of SAP in our corporate teams and beginning to roll out across our regions. So we were well placed to begin to leverage the global visibility of product data end to end. As you'll see here, the planning organization is 1 of 5 functions which take make up the product team here in London and along with merchandising also includes teams within each of our regions. Planning could best be characterized as the most analytical function within the product teams. Today my global team includes various planning, strategy and operational functions as you will see here.
The common link across these functions is a strong analytical and operational focus based firmly in product and commerciality. Our collective goal across the team is to drive sales, increase margin and improve inventory efficiency. This morning, I'd like to share with you some of the key productivity initiatives undertaken across the global product teams, focusing on the themes of rationalization, consistency and elevation, where we've made good progress to date and see significant opportunity in the future. Firstly, range rationalization for our retail channel. This chart speaks to the number of options in our assortments.
An option refers to each style color combination, but not size. As you can see, we have reduced our assortments available to buy in our showroom by almost 65%. This has led to a subsequent reduction in assortments procured or bought by almost 50%. And now over 75% of what we make available to buy is then procured across our global retail portfolio. This reduction in what we made available for sale in our showroom has created efficiencies upfront in the design and product development areas, in the management of our global showrooms and in reducing our requirements for product sampling.
At the same time, the reduction in the number of options procured has enabled us to leverage our supply chain through overall simplification, but even more importantly in driving cost improvements. Since the number of options procured decreased the same time as our revenues were increasing, this led us to buy significantly more units per option, providing our supply chain stronger leverage and costing. This efficiency in our assortments was also seen in wholesale, where our customers now procure about 80% of what we make available to buy, up from less than 60% historically. On to our second theme of consistency, concurrent with our option reduction, we designed and implemented what we have called the brand buy. This is a strategy put in place to bring greater global consistency across our retail stores and is based in key design inspiration, key business drivers and core replenishment.
This has enabled a more consistent experience for our customers around the world supporting our 1 brand strategy. The brand buy is determined in collaboration between our corporate merchants and their regional counterparts. Here you can see we have moved from about 30% commonality of product assortments among our 3 regions to now having about 70% consistency. The balance of 25% to 30% allows for regional variation to further enhance the relevance to our local customer. The benefits of the brand buy have extended through to wholesale as well as today more than 2 thirds of our assortment is consistent between retail and wholesale up from less than 50 historically.
Given the strength of the brand buy and its alignment to our seasonal marketing, our traveling luxury customer is now experiencing a much more aligned brand across all channels. Another theme with inconsistency is that of replenishment. We identify and classify our product as either replenishment or fashion each with its own sourcing and selling lifecycle. Replenishment includes those items which are fundamental to our assortments key business drivers which are seasonless allowing them to remain over time despite the constant evolution of fashion. Replenishment lines currently deliver about 50% of our revenue on a disproportionately lower percentage of our assortment, a stable higher margin base of product, which we endeavor to never be out of stock in.
To support the development of our replenishment program, we put in place a disciplined forecasting process and fully dedicated resources in my team, managing this with each of our regional teams and the supply chain. Replenishment products are ordered on a tighter closer to delivery schedule than fashion and are forecasted and inventoried on a monthly basis at style, color and size level. We can afford to do this as we are dealing with a focused number of items which are highly productive. Executing on rationalization and consistency has been a key enabler of the elevation of our brand. You are all no doubt familiar with our product pyramid and the shift in its shape over time with the growth from London and Corsham now contributing about 50% of our retail apparel business.
Indeed as the assortments have simplified and consistency across retail and wholesale has increased, this shift towards the more elevated Porcelain London collections has been very much by design. As with each season, the product teams embedded this elevation into the brand buy or the requisite assortment. With this evolution, we have seen our average selling price up double digit on average over the last 6 years. We are now quite happy with the balance of our collection as we remained steadfast in our goal of designing for and selling to one customer for different occasions. As I said earlier, all of our initiatives are designed to support driving revenue, profitability and ultimately cash.
So looking at how the product strategies have supported productivity improvements across our KPIs. Improving the productivity of our retail space is a key measure where we know we have opportunity relative to the sector while remaining mindful that with a business which is 60% apparel, we will not reach the densities achieved by pure play accessories peers. That said, we have seen about a 40% improvement since 2010 in our sales per square foot, but still see opportunity for continued improvement. Turning to profitability. Our gross margin is significantly higher now than it was in 2010.
Indeed, we have had the benefit of mix shift to retail, but we have also been able to leverage our supply chain, increasing our depth of buy in key items and replenishment, while managing down unit cost. At the same time, the continued elevation of our assortments and brand has allowed for retail price expansion aligned appropriately with the movements across the luxury sector and providing a nice increase in our retail margin. Finally, our retail revenues have posted a CAGR of 21% over the last 6 years and our inventory growth has been controlled at just a 10% CAGR or 6% if you exclude beauty. So we have generated tens of 1,000,000 of cash over the period through not letting the inventory grow at the same pace as revenue. As Christopher said, we are determined to continuously innovate and I'd like talk you through a few of the projects we have in flight, which will support our productivity agenda as we move forward.
Firstly, store profiling, which is a further refinement and enhancement of our brand buy process will be a key unlock of driving store productivity. Simplistically, we have been building assortments at a corporate level to only 4 store types roughly based on size. This has been fine up until now, but we knew we required a further level of sophistication. Store profiling is our strategy to align the brand buy process more closely with our varied store base, building assortments to fixture level packages, which can then be mixed and matched into clusters of Life stores. Our stores and therefore assortments will now be programmed based on fixtures, climate and the customer profile of each location.
This standard approach will further align our merchandising globally and allow for enhanced productivity analysis and commercial reaction. Align very closely with store profiling is our second opportunity, warm climate stores. In 2,008, we had 97 mainline stores with 80% of them in Europe and the U. S. Compared with 216 today spread across the globe.
If you take a map of our global portfolio, about 40% of our retail stores are in what we would consider tropical or subtropical climates. Given our now global footprint, we believe we have only scratched the surface as relates to designing, merchandising and presenting assortments more specifically to these warm climate locations and customer, both offline and online. Our third opportunity is automated allocation of inventory to our retail stores or keeping our stores in stock. Historically, we would typically allocate about 85% or more of our fashion inventory to stores on delivery, meaning that we had little opportunity to refill to sales other than instigating a store to store transfer, which is both inefficient and often costly. More recently, we have allocated something closer to 60% upfront, holding the balance to refill to sales, progress but still completed in a very manual way.
So today, we have just completed the global implementation of an automated algorithm based allocation software package. Leveraging our strong base in SAP, this technology allows each of our regional allocation teams to derive all store level inventory decisions down to size level systematically. We are truly excited about the initial reads and expect this to drive improved in stock rates and therefore sales. The 4th and final opportunity I would like to share is our next iteration of inventory management and fulfillment. You have heard John talk about the growth we are seeing in digital channel and our embracing of digital opens up both opportunities and challenges.
One of these is looking at how we can better manage inventory in a market using China as a test case. In the second half of this year, we will implement a virtual single pool of inventory within China. This will provide our customers and store associates with full visibility of all stock within the country including the local distribution center and all Mainland China store locations. This will dramatically improve stock availability online and offline and will meaningfully reduce delivery times improving the customer experience and unlocking the digital opportunity in this one of our most significant markets. As Christopher noted in his opening, retail productivity is very much a key priority for us as a team.
As I have shared, we have delivered against a meaningful productivity agenda to date and we still see much more to go for. We see further scope for scaling and embedding retail productivity initiatives and ongoing and good morning everyone. With that, I'll hand it back to Christopher.
Thank you so much, Donald, for that great overview, which I think conveys brilliantly the gains that we've made in recent years in this area and the many, many opportunities ahead, not least in respect of greater productivity. And so I would like to close the formal presentations by reiterating our pride in Burberry's first half performance and our excitement for the future from our near term readiness for Festive to the opportunities presented by our longer term strategic agenda. Underpinning all of this is a passion, energy and teamwork of our 11,000 colleagues around the world to whom I extend my sincere thanks for their continued commitment and their achievements. With that, it just remains for me to thank all of you for your attention, and we will now move on to Q and A.
Good morning. Antoine Belge, HSBC. Three questions, if I may. First of all I'm
not saying who you are, where you're from, just the webcast.
Antoine Belge from HSBC. Three questions. First of all, since foreign exchanges were a topic of this first half, Could you maybe give us the breakdown of the 140 basis point negative impact at the EBIT level breaking it down between on the one hand the gross margin impact and then the SG and A impact or maybe giving us also the increase in SG and A at constant currency? The second question is on the gross margin and also trying to tie up your results with what Donald just presented in terms of trying to drive productivity. It seems that in the first half, if you restate from FX on the one off, there was not much gross margin improvement.
So, what about the channel mix? What about those initiatives? And also maybe the average increase in your prices of your products? And finally, I think you've highlighted challenges ahead. On Hong Kong more specifically, can you comment about October November?
And maybe if you've seen a more recent improvement and maybe differentiate between the situation downtown in Hong Kong or maybe in the airport? And finally, how you see the situation evolving? Do you think that we'll see Chinese will travel, but maybe elsewhere? Thank you.
Should I take the first one? So on FX, we're saying that on a reported basis EBIT margin was down to 20 basis points on the first half last year. Looking at that and that was significantly impacted by FX. Looking at it on a constant basis, we're saying that the gross margin on a constant basis we were down about 80 basis points. And of that around €100,000,000 we're saying was on gross margin.
And I'm we're saying that that's specifically related to or principally related to the one off inventory cost we've taken which I spoke to just now. 1 off costs relating to the accelerated launch of Brit Rhythm women's fragrance this time last year when we didn't have the same controls visibility over distributor forecasting inventory planning that we now have. So that's one off and won't be repeated and that's been the major impact on gross margin. On OpEx, we have actually seen some leverage this half net net and we've seen some operating leverage. And we've tightly controlled costs as we've gone through the half.
So overall down 80 basis points on a constant currency basis. Donald, did you want to take the one on gross margin and pricing?
To discuss the pricing point, our pricing policy remains unchanged as it has served us brilliantly over the course of the last 6 years. We are constantly evaluating and have very discrete team that evaluates our pricing on an ongoing basis. So we continue to watch how the market moves as well as taking opportunistic pricing where we believe that there's an opportunity. As it relates to the initiatives that I laid out, yes, in fact, many of them will clearly deliver productivity and margin. Some of that will be given back through flow through and some of it will be reinvested back into the business as we move forward.
And then in terms of your third question, Pascal, obviously, we can't talk about current trading, but Pascal can give a little bit of color on what's happening in Hong Kong.
Yes. Thank you very much. As far as Hong Kong is concerned, we focus on what we can control. Obviously, traffic is not something that is within our control. But there are three things for Hong Kong.
The first one is that we do have there 17 stores and only 2 of them are in the concerned areas. The second thing is that we have also opened our direct operation in Hong Kong Airport over the summer and it delivers great results due to the dynamic of this airport which is the number 8 in the world. And finally, I'm living in Hong Kong. It's very peaceful. It is not necessarily what you have seen on TV in the early days.
It's very disciplined, very peaceful and in a way it's basically no change. So we continue to do in Hong Kong our great marketing strategies and operationally.
Maybe just a follow-up on Donald's comments. So in terms of brand elevation, do you think that you've done most of it or is it more to come?
Elevation can be looked at in many ways. So as it relates to the shape of our brand Pyramid today, where we're about 50% London and Wholesome and 50% Brit. We feel very comfortable with the shape of that pyramid at this point. It feels quite balanced and we've done a great deal to get to that place. Elevation can be in other ways as well.
We are building we continue to look at quality and improving our quality, adding many elements to our garments and our items. So I think we feel quite good that we'll continue to elevate the offer at the same time.
It's also elevation across all different platforms as well no matter where a customer touches us whether it's at retail or digitally and online. So for example, the heritage program that we just relaunched that was what we're calling an elevation of our iconic products and it's where we put it really under a microscope.
Mario Telli of San Franci Bernstein. Three questions, if I may. The first one for you Mr. Bailey about EBIT margin. The management EBIT margin, the management committed in trying to increase this EBIT margin going forward in the next years.
Considering your 5 evolving strategy, what will be the most important to achieve this goal? Elevate further the brand and therefore having more pricing power, realize the product potential with a different mix and more accessories, optimize the channel with more retail, can you put a hierarchy of your focus to improve vis a vis margin going forward? The second one is a deep dive on this. Nowadays, your retail if I don't if I'm not wrong is 68% of your sales. Going forward the Berberine 5 years which percentage has got as a target?
And the third one is about Japan. When I talk with the management of the company, you always tell me that the perception of exclusivity perceived of a Burberry brand in Asia is the highest globally. Then we have got the perception in Europe. Then we have got America. And in Japan, for sure Burberry didn't have yet just challenge to position itself.
How many years will it take to build up a perception of a Burberry brand in Japan similar? I don't want to say yes in China, but at least as in Europe? Thank you.
Okay. So your first question about margin, it is an absolute focus in the company to increase our long term margin. That is why Donald spoke at length about the productivity agenda that we've got. And that productivity agenda goes across product. It goes across processes and it goes across retail.
So everywhere that we have all of those points we have very, very strong initiatives to grow margin. Do you want to touch further on that in terms of productivity?
Yes. And I think the 4 projects that I highlighted you are just examples of what we're working through. And part of what we've presented across the course of today is the fact that we have many different strands that we're looking at. And those are just some examples. I think it's very difficult to say which one we would prioritize as the greatest driver of profit because each one of them has their own merits.
And ultimately what we're looking for is what would make the customer most satisfied which will then drive even.
We talked about as the overarching principles of product customers brand and productivity and responsibility. And it's as a hierarchy, those are the things that we're focusing on across all the different five strategies. The second question?
The question
was on retail and where we are now.
Retail from 68% to what percentage in 5 years?
Yes. I don't think we put an absolute percentage on it. I think it's about as Christopher spoke this morning it's about optimizing all channels all routes to market. So it's not obsessing about one or the other. It's making sure that now we've got we're very focused on the opportunities that lie ahead.
And I don't think you'd expect us to put a number on it. We're pleased with the strategy that has served us well to date in terms of retail ad growth. But I don't know if you want to talk a bit about optimizing channels and where that might take us?
Yes. I mean the channels that we in terms of the way that we merge the physical and the digital across everywhere the customer journey takes us is how we're focusing on that. So for example, in wholesale and as John talked about, we've got physical wholesale partners as well as digital relationships with those guys. But we're also exploring 3rd party digital relationships Tmall being one of those. And so we see a lot of different ways of talking to a consumer that we currently don't.
Your The last question was about Japan.
Japan, yes. So in terms of Japan, we were in Japan recently as a team. And I'll let Pascal talk a little bit more in detail. But we have the same approach that we have globally, which is why we've taken back that license. We have a very strong flagship strategy in Japan.
We have built some very, very strong relationships with the department stores under Pascal's guidance. But we also have a very strong digital media strategy. So in terms of timing, we're not talking about specific timings of when we'll be up to the levels of China. But we have a very strong team, a very strong strategy in there and very strong relationships with partners there. Pascal is there anything you want to add?
Thank you very much, Christopher. In May last May, we disclosed to you our Japan strategy with some time line and some numbers. So this remained unchanged. Over the summer, we've been having our roadshow following the official license termination that took place in April earlier this year. And we have got great response from department stores.
So both on the flagship store front that Christopher mentioned and with department store, we have we are very confident and have done great progress.
Warwick? It's strange.
Yes. Thanks, Christopher. Warwick O'Kynes from Deutsche Bank. I was wondering if I could just come back to the 3 questions Antoine asked about ASP costs and gross margin. On ASP, Donald said that the average increase had been double digit in the last 6 years.
You said on your last call that it was about half of the driver of like for like, so about 4%, 5%. Is that a reasonable assumption for future years?
On ASP, I think that's a reasonable assumption. I mean we've had taken the strategic price increases that Donald talked to as we sorted out the pricing hierarchy. But now going forward, we just see modest price increases coming.
Thank you. On costs, I think the constant FX cost growth in retail wholesale in the first half was around 12%. Is that a reasonable assumption for the second half of the year?
Yes. I mean we're guiding to the full year margin really in first half, second half split. Don't obsess about that. It's really around in the second half. Our business is weighted in the second half retail wide.
But we're really guiding to the full year margin in terms of we're talking about rebasing that margin for FX down from the 17.5% last year to around something like 17% at constant currency. And then we're saying we may see some slight downward pressure from there both because of the more difficult macro and because we will continue to invest. So really looking to dynamically manage costs as we go through the second half as we always do. Very mindful of the macro, but not turning off investment in those key initiatives that have driven that top line number we've seen today.
Okay. And finally on gross margin, I'm a bit confused about all of the moving parts. Could you just say 2 things? Is the intake margin improving in the first half of the year? And secondly, this time last year you said that markdown was at its best level in the history of the company.
Are you still around that sort of level?
Yes. So I mean initial margin is remains strong and there's nothing specific to call out there. We're really saying that the margin impact we've seen in the first half has principally been driven by that one off inventory cost we've taken relating to that beauty launch. There's a little bit of mix in there as well because beauty is a bigger proportion of the overall product mix than it was previously. And even within product itself we've talked about Prossome and London outperforming they tend to be slightly lower gross margin but more EBIT pounds.
So nothing significant to call out in terms of initial margin level of markdowns really just flagging that there was a one off non repeatable cost in the first half. Cost in the first half. Thank
you. Okay.
Thomas Rovere, Citigroup. Three questions, please. The first one on beauty. If we strip out the write down of the fragrance of last year, it seems to be about £10,000,000 Can you give us a broad indication of what is the beauty gross and EBIT margin? Or at least did that EBIT margin of 12% in H1 last year improve year on year?
Secondly, a question maybe for Pascal on Japan. Can you just be a bit more specific when you say no change versus the plan? And the number of doors, apologies, that you will open in Japan? Are you happy about the locations you've secured? Can you talk a little bit about Black and Blue and how this is going?
And how are you getting rid of the legacy image of Burberry with Black and Blue? And what is the £1,000,000 CapEx that you need cumulative over the next 2, 3 years in Japan to do that transition? And finally, on the tougher environment, which was very obvious in Q2 because you like for like decelerated quite a bit, still very healthy. But which channel within retail held up the best between, let's say, mainline store in flagship cities, mainline store in provincial non flagship cities, digital outlets, I would think perhaps outlet are holding up well. So could you give us granularity on the retail within the deceleration, the tougher environment?
Thank you.
So I'll take the one on beauty and margin. So yes, there was this one off cost in H1. I said a £1,000,000 slightly less than £10,000,000 but something of that order. We're not splitting out beauty profitability in terms of margin going forward. No different than we don't talk to you about what the men's margin or the women's margin is.
Because I mean as we've talked about the halo effect the way we're running fashion and beauty side by side it's really the My Burberry launch is probably the best example of how we're running those businesses side by side and the halo effect that one brings to the other. So was the marketing spend we spent on My Burberry a beauty marketing spend? Or was it a fashion marketing spend given that Kate and Cara were there wearing heritage trench coats at the same time that we had just relaunched heritage? So nothing specific to call out on beauty margin. We're just slacking that one off this half, but saying that combining those 2 together is where we believe why we bought the business back and is serving us really well in terms of the halo that one's bringing to the other.
Japan, Pascal?
Thank you very much. Maybe I'll pass it back to you regarding the CapEx question, Carole. So let me remind you the time line. So in June 2015, the license terminates, which means that from that date until the end of September 2015 all the licensed product will be removed from the market. The second thing that you need to be reminded is that we started our own operation with the global products about 5 years ago in I would say an ideal branding environment because it coexists with the licensed product.
That said, Burberry Japan with global products is the fastest growing entity at Burberry posting very strong double digit. And it tells you how promising and successful our early steps in this market are. As far as stores are concerned, there are 2 streams. You have the freestanding stores that includes flagship stores to the earlier point of Christopher. So we announced that we would like to have between 4 to 8 of these stores.
As far as flagship stores are concerned, we are well on track. We will open at the end of this month's Omotesando store in the Luxury Street next to LV corner space. We will open next March Osaka Shun Saibashi another freestanding store next to Prada. In July, we will also open Shinjuku at Shinjuku Crossing another flagship store in front of Libertyton. And we are actively looking for securing another flagship store in Ginza.
So those flagship store statement will come right on time when all the licensed product will phase out the market. As far as the 2nd part of store is concerned the department store, we have very, very good discussion with the department store and we'll confirm presence on the luxury floor in all the flagship stores of each big department store in Japan. So in total, the plan does not change. We are looking at 30 to 50 directly operated stores in Japan. And in the next 3 years, we look at our £100,000,000 business generating about £25,000,000 EBIT.
So the plan is not changed. On Black and Blue label also the plan is not changed. The brand migration that we explained last May is
underway. And we saw it.
And yes, we saw it. So it's Japan basically everything we told you last May is on track and executed very, very smoothly and swiftly on all fronts.
And your last question with revenue up 14%, we talked about it was across all three regions and across our 3 main product categories as well. Digital absolutely outperformed. And Carol, I don't know if you want to give a little bit more color it. Yes.
I mean, we talked to you on the call months ago just in terms of the comp was 10% for the half as a whole. We had talked about the fact that Asia Pacific and Americas across the half was still double digit. EMEA had performed well during the half, but was single digit. Nothing specific to all that. We talked about digital outperforming as Christoph said.
We talked about still seeing growth from the Chinese both in China and when they were traveling although growth had slowed somewhat. But other than that there was nothing again Americas Digital performed very nicely for us but nothing specific to call out channel by channel. I mean, we don't spit out this out. I mean, it's out we used to, but we I don't think we spit out out for a long time actually to be fair.
Hi, Julian. Thank you very much. It's Julian Eastoak from Barclays. I'd quite like to have an update if I may on beauty. You've had the fragrance launches.
How important are the new fragrance launches? And you're building the whole business around the I think there are 5 pillars. Just how well the pillars have continued to grow? And we've obviously seen the rhythm cut write off in terms of some of the product. Has rhythm collapsed?
Or are we actually still seeing sustained underlying growth? So to answer QuickRhythm absolutely no. It's still very strong and it's a pillar that we absolutely believe in. We have this little issue that's affected gross margin as a one off, but it's we're still reinforcing that as one of our major pillars. And in terms of beauty as a whole, the way that we're looking at it is because it's part of our 5th product division.
It's very much a strategy that we're holding to. What we did with My Burbn, we feel that it was a very successful launch and execution because we launched it in tandem with our heritage program. As we said that we will always make sure that fashion marriage directly with beauty. So with Kate and Cara on the ad campaign we put them in our most iconic products that we were launching simultaneously. So again in the advertising, it's very difficult to say if that's a fashion campaign or a fragrance campaign and we're seeing that halo effect across the whole business.
We also launched in tandem a small capsule collection, has done incredibly well alongside the My Burberry franchise as well. Carol is there anything you wanted to add to it? And also in terms of cosmetics how that's actually progressed in the half? And also I think skincare was going to be launched next year. Just if you've got any updates on that as well?
Yes. So skincare absolutely we're still looking at when that actual launch date is, but we're working on the development of that. And not dissimilar to fragrance, our color and makeup is very tightly tied to our fashion. So you will have seen that it was integrated into all the communication that we did around the fashion show. And we're just starting to do quite significant advertising imagery around makeup as well that is all in line with our fashion.
So it's Brilliant. And just on a different subject in terms of inventory. We heard all about the efficiencies. I just wondered if there was much further to go in terms of your inventory efficiency into the medium to long term?
Oh, dollars I've talked about this the whole time.
Yes. So Julian, I think that we do have further opportunity as we move forward. And I think the China single pool of inventory is a bit of a first glance into where we think we can gain great efficiency. So let's assume that that's going to work brilliantly well, which we wouldn't be doing it if we didn't think it would. And then it's a matter of what would that mean on a further basis.
Thank you very much.
It's Louise Singlehurst here from Morgan Stanley. I'll do the usual three questions if I may. Firstly, just on Christmas. You've obviously talked about an exciting campaign lots coming up. Can you talk about how differently the team are executing?
Got earlier deliveries? Are there more giftables in the selection? Secondly, a question for Carol, back to the cost and margin point. In a more difficult environment, can you give us a little help in terms of understanding the cost base, the type of like for like that's really needed through the business to normalize margins or keep them flat on a constant currency basis? And then my final question for John, we've heard a lot about online.
I'm sure we were all looking at Tmall numbers yesterday with much excitement. What keeps you awake at night? What are the big challenges? It can't be as easy as you present. Thanks.
So Louis to answer your first question in terms of giftable we in terms of festive it's something that we put under an intense focus. We started Christmas this time for this year. We started this time last year to start learning all the things that we were doing right and doing and that we could have improved on. What we've done is we've done a very, very big product focus. So we've expanded the development of our products in with a real giftable microscope.
So that includes more accessible gifting as well as very, very high end gifting. Online, we've created on bobi.com a giftable search function. We've also and I was going to talk about at the end, we have created a book of gifts, which you've all got on your table because you'll all be looking for Christmas gifts. We have invested more than ever in terms of all the creative content and advertising. We worked with Romeo Beckham and a big group of dancers to launch that globally across all of our platforms in on all our social media platforms as well as in cinema.
And we have also worked on our service teams so that they're better prepared than ever with their iPads and with all the training. And also in all of our distribution hubs, they have got a very, very strong approach to how we can execute much more efficiently than we've ever done in the past.
Yes. And then Louise to your question on comps and costs. I mean clearly we've always talked about dynamically managing the business as we go and that's what we will do as we go through the second half. There are a number of levers we have to pull depending on where the comp level materializes because the number of our store rents are variable. Clearly commissions are variable.
There's discretionary costs in terms of maybe potential headcount increases T and E that we would always as you've seen through the first half manage quite tightly and will continue to manage even more tightly if the macro became more difficult. And then at the end of the day, there's always also management incentives in terms of we have those stretch targets. And if we don't achieve those then that's the other lever that will naturally be pulled. But we will continue to dynamically manage the cost as we go through the second half. We've guided to the fact that we see on a constant currency basis the margin being under some modest pressure as we look to the full year being mindful of the macro and the fact that for all the investments that Chris has talked about, we're not going to as we haven't done in the past turn off the investment in China fulfillment or the investment in digital just to spike the margin in the half, but very focused on controlling discretionary spend as we enter the second half.
And on digital Louise, thank you very much for the question. It's funny, Adrienne will have seen I'm sure the Tmall numbers from yesterday, but just in case Tmall the platform in China have this thing called Singles Day on the 11th November. It's quite a phenomenon. I won't give you the detail except to say that last year they sold $5,800,000,000 worth of product on a single day, single country, single platform. So everyone was watching with great interest what it would be this year.
And you probably all know by now it was over $9,000,000,000 It's just an incredible phenomena really. And I'd say we found it so easy working with Tmall. As I said in my presentation, we went to see them and very much embrace the idea of it. And I'd say that you're asking me what keeps me awake at night in this area. I'd say that I think some companies are seeing this world of massive tech giants, so huge aggregators as potentially highly threatening and a real problem.
And we are in such the opposite place. We're embracing it. We are out there talking to them all. In fact, if anything keeps me up at night, it's the fact there are sheer number of them to try and get around and do business with. And that's why we developed that idea of the 3 R's as a way of trying to sift through the sheer scale of the opportunity and try and work with the ones that are likely to give us those 3 R's the most the quickest.
And we've got a lot of deals still to strike therefore. But we see this as such a great opportunity and not a threat. And I think generally on digital Louise, I hope you'd agree from what you've seen from the company over several years is that the company embraces this world so comprehensively. All the different developments that are coming along we do see as an opportunity and not as a threat.
I think we've got time for just one more.
Thank you. It's Will Hutchings from Goldman Sachs. So again I've got 3 just to keep you going a bit. The first is on the millennial consumer. So the younger consumer it's clearly a point of differentiation for you.
Outside of digital which is obviously one of the attributes of a millennial consumer, what are you doing which is so powerful for the millennial consumer? Is it about price point? Is it about product? And crucially, how do you think that consumer behaves? Because I'm just on the cusp of millennial, so I wouldn't really know.
But are they more fickle? Do they jump around a bit more? You're going to have to pay more for attention. You're going to have to be more imaginative. Or are they actually going to be stickier than the previous customers?
So that's quite a long winded first question. The next 2 are a bit simpler. On digital, John, are you completely agnostic to whether a sale happens on burberry.com or a 3rd party? And how big does this business have to become for you to start to say, okay, but you can have certain parts of our product range not the full SKU range? And then just a simple numbers question.
The 100 basis points impact in the first half from the beauty write off plus the €25,000,000 headwind on currency presumably that means margins are going to be up quite strong
in the first half of
next year. So I'll answer the first question in terms of millennials that you and I still class ourselves as. Digital is absolutely a key to talking to a younger consumer. But it's not just the language, it's also the sharing. And that's something that we feel is hugely important because they it's a much more social approach to shopping.
Responsibility is high up there for a millennial consumer, which is why for example our packaging we've just reduced the carbon footprint of it and also that 50% of it is using recycled materials. Product is obviously something. So we beauty is something that we wanted to launch because that is also attractive to a millennial consumer. And the idea of giftables is also something that is it's part of of course festive and Lunar New Year, but it's also another way of talking to a consumer. But we look at a millennial consumer not just in terms of how to get them into the company to transact, but it's how to get a loyalty over the long term.
And we've always said that everything we do is for long term. And so music is something that a millennial consumer reacts a lot to. So for example in Regent Street we and several of our stores around the world we have music events. That brings that millennial consumer in. They then start to relate you to things that interest them and they start to share that information.
So it cuts across lots of different areas.
And in terms of the third question, just in fact just to add to that point Christopher about millennials, it's quite an interesting thing to pop into the Regent Street store and clock what the millennial consumer is doing. I mentioned in my speech that the technology is as much a part of the experience as the actual product. When you go into the Regent store to see millennial consumers particularly from China, they've all got their smartphone out. It's nearly always open. They've often got WeChat up and running.
So as they're buying the product, they're interacting with WeChat, probably interacting with their social graph back at home, but also taking selfies, videoing the product and so on. That's all part of the buying experience. So I don't think you can separate out what we're doing in digital for the new millennials from everything else the company is doing. The whole thing is integrated. And on the point about are we agnostic about where the purchase is made and the answer is definitely yes.
For us the 3 Rs are what matters. We don't want to be positioned on Amazon and Tmall are as much about a positive Amazon and Tmall are as much about a positive aspect of reputation I. E. We want our kind of imagery, we want the thing to look beautiful, it wants to be feel like a luxury environment and a negative aspect of reputation, which is the taking down of all the counterfeit gray market and unauthorized traders, which also matters. All of those things are important for us.
But as far as we're concerned, we want to get out potential Burberry customers, luxury consumers in whatever way we can. And if these platforms can give us great reach, we don't mind that some are wholesale, some are retail, some are concessions, everyone is different. We don't really mind. We just want to follow the 3 Rs.
And then to your question on gross margin this year and what it means for next year, absolutely that's a one off. So we would expect that to reverse next year. In terms of FX which is sort of obviously had a significant impact this year as I model high level the numbers for next year way I've just done it at the moment is looking at revenue. And revenue in the first half of this year was impacted by something like £70,000,000 Looking at the same revenue numbers for this year at current spot rates, I think it would be something like more like £20,000,000 benefit because we've got the degree of appreciation or depreciation in sterling is nowhere near what it has been across all the currencies this year. And then we've got something at this point and rates may move all the time.
We don't expect we will see a benefit next year, but don't expect it to be of the scale of the disbenefit we've seen this year.
So, yes, thank you very, very much indeed. Everyone thanks for joining us for coming over to our home, Horseshoe House. We really appreciate the opportunity to share with you some of the things that we're doing and also to introduce you to the broader team. Just before you leave because I know you all want to get into a Christmassy festive spirit, please allow us to show you our festive video. And please do take away your book of gifts.
We can arrange a Burberry private client to sit with you and go through that at any point. So just give Faye and Charlotte a call. And thanks again for joining us.