Fashion industry struck by China lowdown

Mulberry warning raises fears Asian demand for luxury goods has peaked

A profit warning from Mulberry wiped £187m off the designer's market value yesterday and sparked a sell-off across the luxury sector as it became the latest brand to highlight weak growth in China.

Its sought-after "It bags", such as the £795 Alexa bag or its classic £695 Bayswater, have failed to lure enough overseas shoppers, while its wholesale shipments slumped 4 per cent, sending the company's shares down by 24 per cent.

The disappointing results for the six months to October followed a profit warning from Burberry last month, while alarm bells of a Chinese slowdown have already been rung by US jeweller Tiffany & Co and the upmarket clothing brand Hugo Boss.

Luca Solca, the global head of European research at CA Chevreux, said: "Slower macro growth in China is finding its way into more subdued luxury goods sales. This joins the very low domestic demand in Europe, as well as question marks on how the fiscal cliff in the USA will play out.

"It would be logical to anticipate lacklustre relative share price performance by the sector, as more bad news is likely to come on the table."

Following the news from Mulberry, shares in the French luxury giants LVMH and Gucci's owner PPR – which reports results tomorrow – both fell 2 per cent. Burberry lost 3 per cent while Mulberry ended down 314p at 1,006p.

Mulberry's UK retail sales grew by 10 per cent during the half year to October, with sales up 6 per cent to £76.5m. But the company's difficulties lie in its overseas business.

Its finance director Roger Mather said: "We're not falling over a cliff, it's just everyone's got used to enjoying compound annual growth of 25 or 30 per cent, and this year is a pause for breath. The share price will be what it will be. We've got to grow this brand."

Mulberry blamed its poor figures on the repositioning of its brand – it is reducing the number of shops that sell its goods in Europe and has cut the amount it sells at a discount in outlets such as Bicester Village in Oxfordshire.

Mulberry had been manufacturing bags exclusively for the discount market, but the new chief executive Bruno Guillon, who joined from Hermès in March, scrapped this production line.

Mr Mather explained: "We really want customers buying at full price from our expensive retail locations."

While one expert explained Mulberry's decision to cease selling its products in many Italian stores was due to the fact that its expensive handbags were ending up on the "grey market" and sold in China, hitting its brand value.

Despite the excuses, City analysts described the profit warning as "severe", and Philip Dorgan at Panmure Gordon said: "Mulberry is now at the crossroads."

Mulberry's woes were not echoed across the pond by the US handbag brand Coach. In its first-quarter update the brand reported a 10.6 per cent rise in sales to $1.16bn (£728m), driven by both overseas and US sales. Coach, which uses actress Gwyneth Paltrow as its "face", met analysts' expectations for the three-month period to October with net profit of $221m, up from $215m in the previous quarter.

But prospects for the luxury sector globally remain gloomy, with China still a major concern. Last week's Swiss watch data revealed exports in September fell for the first time in nearly three years, driven down by weaker Asian demand.

Start your day with The Independent, sign up for daily news emails
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Life and Style
fashion
Arts and Entertainment
tv
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there