Burberry is to close its loss-making ­Spanish business which produces a cheaper ­clothing line sold in department stores such as El Corte Engles. The luxury fashion company said sales had collapsed by almost 40% as consumers cut back spending in the recession ravaged country. As a result Burberry said it was “no longer viable” to make a separate collection for Spain. The company has begun talks with 300 staff at the head office in Barcelona, which is to close.

Spain is unusual within Burberry’s presence in 25 countries with the business a hangover from its days as a franchise operation. The company bought it back ten years ago and had slowly been moving it into line with other European markets such as France. ­Burberry chief executive Angela Ahrendts said the deterioration in sales meant decisive action was called for.

Burberry said its Spanish business had a turnover of £145m in the year to March 2009 but six months into this financial year, sales were down 37%. The company will now meet Spanish clients such as El Corte Engles to discuss options as the winter collection is already in production.

Ahrendts’ predecessor Rose Marie Bravo reinvented the dowdy British trenchcoat maker as an international ­luxury brand whose glamorous campaigns are now fronted by Harry Potter actress Emma Watson. Bravo began buying out licence-holders so the group could regain control of the brand’s image.

The luxury label said it would launch its main collection, which is designed by Christopher Bailey, in Spain next year. The change may put off some retailers as it is more expensive – and fashionable – than the Spanish diffusion line. The designer collection is only sold in three Spanish stores at present.

Burberry said the restructuring costs could run to €70m (£61m) and it would explain how next year’s profits would be affected at full-year results in May. Shore Capital analyst Kate Calvert said Spain had been Burberry’s “achilles heel” for some time: “Spain was run under licence and the brand became over-exposed. We believe this is the right decision even though there may well be some short-term financial pain.”

Analysts estimate that El Corte Engles accounted for 50% of Spanish sales and its decision would be key to determining the future size and shape of the business.

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