Mulberry fights back with expansion strategy

After warning of lower profits the luxury brand aims to boost margins

Laura Chesters
Sunday 02 December 2012 01:00
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The luxury handbag brand Mulberry has scrapped plans for new outlet shops to focus on opening full-price only stores as it moves even further upmarket.

The Somerset-based group will also develop its clothing line, worn by the Duchess of Cambridge this week, and produce new fashion products to expand its market reach.

The brand, which issued a profit warning in October – its second this year – that sent its shares tumbling by more than a fifth, will step up its global store expansion. It is eyeing up new stores in France and Germany and across the US, as well as new Asian stores.

Mulberry has already begun to reduce the number of retailers that it sells to on a wholesale basis. The reason behind the move to full-price stores is to control margins.

Margins will be a key focus for investors when the chief executive, Bruno Guillon, unveils half-year results to October this week. Mr Guillon, who has been at the brand famous for its Alexa and Del Rey handbags for eight months and was previously at LVMH and Hermès, will lay out his new strategy.

The profit warning led analysts to reduce their forecasts for the year to next March to £31m – below last year's £36m. But Mr Guillon is expected to explain the warning as a blip – a necessity to scale back the cheaper elements of the brand and refocus on the high end. Its handbags retail at upwards of £600.

With sales of £168m last year, the group also plans to focus on more UK-made products, which make up only a fifth of sales.

The group has hired Carl Barbato as its new head of the US, based in New York. The brand opened a new store in San Francisco this summer and is also looking for shops in Chicago, Los Angeles and Boston.

In the UK, it has doubled the size of its Edinburgh store, opposite Harvey Nichols, and is searching for another in London. Mulberry will also focus on opening stores in top international airports.

The group's shares started to recover last week, and fears of a wider slowdown of Chinese sales have largely been calmed by better recent figures.

Goldman Sachs expects China to continue to grow as a consumer of luxury goods. It predicts the luxury goods industry to grow 8.5 per cent a year to $1trn by 2025.

According to the trading house Banc De Binary, luxury retail shares have outperformed both mid-market and budget retail shares over the past 12 months. Luxury goods share prices have grown by an average of 16 per cent, compared to 11 per cent for mid-market retailer shares in the last year.

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