Slow UK market drags down Mulberry sales

Falling tourist numbers in Britain have dented sales of leather handbag maker Mulberry at the start of its financial year, even as it expands in Asian markets where luxury goods rivals have prospered.

Mulberry is also exposed to the pressures on a British retail market that has led to stores at the lower end of the spectrum shutting and cutting costs.

Mulberry, which has been going back to its roots as an “affordable luxury” brand with most bags priced under £1,000, on Wednesday reported a 7% drop in like-for-like retail sales in the 10 weeks to June 2. Underlying sales in Mulberry’s home market, comparing stores that have been trading for a year or more, were down 9% in the period, compared with a 1% fall in the previous year.

Shares were down more than 8% early on Wednesday.

“The UK is really challenging,” CEO Thierry Andretta said, pointing to the falling number of foreign visitors — a key revenue stream for luxury firms — in what he said was traditionally a low period for turnover.

Andretta said Mulberry was still positive on the British market and investing in an expansion with a new store on London’s Regent Street due in the summer months ahead.

“We are fully committed to the UK, we think it’s still a great opportunity,” Andretta said. Mulberry had opted not to heavily discount its products. “We are not playing the promotion approach that is now moving up in the UK,” he said.

Department store House of Fraser is among British groups struggling to survive in a brutal retail environment, and closing outlets. Mulberry said five of its House of Fraser concessions could shut as a result.

The brand, which manufactures half its leather bags in Britain, is accelerating efforts to grow overseas in markets such as China and Japan, with new stores and a push in online sales.

Strong demand from Chinese shoppers, and particularly younger buyers, boosted sales at luxury brands such as LVMH’s Louis Vuitton and Kering’s Gucci in the first three months of 2018.

Mulberry said on Wednesday it had signed a new venture in South Korea to develop its business there alongside SHK Holdings, and Andretta said the brand would present its next winter collection in Seoul.

Mulberry’s like-for-like international retail sales were up 1% in the 10 weeks to June 2, after growing 5% in the year to end-March. They were down 1% on a comparable basis in Britain for the full year.

The company reported fullyear profit before tax up 36% to £11.3m, before taking into account expenses linked to its investments in Asia.

Mulberry said its new products were selling well, with designs by Johnny Coca, who joined in 2015 from LVMH’s Celine brand, accounting for more than 50% of sales. It said its £1,095 Amberley handbag, launched in 2017, was its new bestseller.