Mulberry warns investors about weak demand

Mulberry’s boss has warned there is no end to the global downturn in luxury after Mulberry posted another drop in sales.

Thierry Andretta is the chief executive officer of the luxury handbag maker, whose investors include Mike Ashley’s Frasers Group. He said that the UK and China trading environments “remain challenging” and they do not expect it to improve in the near future.

The warning caused the shares of Mulberry to continue falling on Aim, London Stock Exchange junior market. The shares fell 10p or 9.3 percent to 97 1/2p. This brings them down by 57 percent over the last year. Mike Ashley’s Frasers Group fell 11p or 1.35 percent to 805 1/2p.

Mulberry’s full-year trading report revealed that its group revenue fell by 4 percent in the period ending March 30 compared with the previous year.

Andretta stated that the British leather goods company had “not been immune” to the recent decline in luxury spending, especially in the UK and Asia.

The company stated that future losses can be attributed in part to increased operational costs for new stores in Sweden, Australia and investments in technology.

Mulberry, founded by Roger Saul in 1971, employs approximately 1,200 people at its leather goods factories, The Rookery in Somerset.

The Bath-based firm, which designs leather goods, such as bag lines and other lifestyle accessories and reports a loss before taxes of £12.8 in the 26 weeks leading up to the 30th of September, reported a pre-tax profit of £3.8 in the first half 2022.

Mulberry reported that retail sales were flat in the last year at 0.3 percent, and were impacted by a drop in the UK, Asia Pacific (excluding Australia), which “continued being challenging due to macro-economic conditions in China and decreased footfall throughout the region,” the company said.

The drop was countered by a stronger trade in America where the brand “benefitted from increased brand recognition” and new shops in Europe. UK retail sales declined by 3.2 percent while international retail sales increased by 7.2 percent.

Inflation and economic instability are reducing the desire of people for luxury goods. The $350 billion luxury industry, which usually can withstand economic headwinds has seen a slowdown in demand.

After the “you only live one time” post-pandemic spending boom, several luxury businesses reported a drop in sales.

Kering, the French Fashion Giant, warned last Month of an expected drop in half-year profit after its first-quarter revenue slumped 10 percent, and sales at Gucci were off by 18%.

Burberry, a British luxury retailer famous for its tartan checks, issued its second profit alert in three months after a slowdown in sales in January. The brand is going through a transformation as it tries to move upmarket.

Trading problems in the UK have been exacerbated since the government axed VAT-free shopping to tourists a few year ago. This move was particularly detrimental to luxury retailers that rely on wealthy tourists.

Mulberry and Burberry are two luxury retailers that have blamed the decline in sales in the UK on the tax-free spending. Instead, shoppers chose to spend more money on luxury goods in other European cities.

Mulberry had to close the Bond Street store it operated in London. The company said that at the time, the absence of VAT-free shopping was “particularly felt” on Bond Street in London. This has been a popular shopping destination for tourists.

Luca Solca is a luxury industry expert with Bernstein. He said that the high-end retail sector would be challenged in this year. However, “2025 could be a much better year depending on the outcome of the Chinese presidential election, and the geopolitical hotspots”.