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Is Mulberry’s Turnaround Working?

Mulberry posted a 21 percent rise in profit on the back of a turnaround strategy aimed at bringing the British handbag brand back to its affordable luxury roots.
Mulberry Spring/Summer 2017 | Source: InDigital
By
  • Limei Hoang

LONDON, United Kingdom — On Wednesday, British luxury handbag maker Mulberry reported a 21 percent rise in annual pre-tax profit, helped by demand for the new designs of its creative director Johnny Coca and a rise in online sales.

The company reported pre-tax profit of £7.5 million ($9.6 million) for the year ending March 31, up from £6.2 million last year, and revenue of £168.1 million. Sales from its online channels also increased by 19 percent, now representing 15 percent of its group revenue.

However, the results also showed that Mulberry’s overseas like-for-like sales fell by 3 percent for the 10 weeks ending June 3, and its domestic sales only grew 1 percent, less than in previous reporting periods, causing its shares to fall around 2.6 percent in early trading.

“It’s really a set of results in two halves,” said Neil Saunders, managing director of research firm GlobalData Retail. “There’s a reasonably encouraging set of numbers coming from the domestic business and I think there has been a bit of a pick up there in growth. Although it’s not what you would call stellar, it’s reasonable and it shows that some of the new lines have gained traction and interest.

"The international side of the business is a little bit less encouraging; that's where Mulberry continues to struggle to carve out a presence in markets that are very crowded and very saturated," continued Saunders. "Especially as you've seen brands like Coach come back and revive sales, I think it's becoming a little bit more difficult for Mulberry perhaps to cut through."

They're definitely going in the right direction, but there's just a little bit more that needs to be done, just refining and honing that brand.

The improvement in Mulberry’s profit and revenue comes as the company is in the midst of orchestrating a turnaround strategy to bolster the brand after an ill-considered attempt to radically elevate its offering backfired, alienating former customers without attracting new fans.

Since then, the company has worked hard to move away from the turbulence of 2013 and 2014, a period marked by three profit warnings, by hiring a new creative director Johnny Coca from French luxury brand Céline and chief executive Thierry Andretta.

Andretta, who has worked at LVMH, Lanvin and Gucci, has overseen a turnaround strategy focused on driving four pillars of the brand: product, brand, omnichannel and operations. The company also announced plans in May to adopt a "see now, buy now" model, a decision it hopes will drive further engagement with the brand and increase its relevance to customers.

Mulberry’s results suggest its turnaround efforts are gathering pace. But are they enough to win back its legions of former fans, particularly at a time when the market for affordable luxury handbag brands is so saturated?

“Mulberry’s turnaround remains on track with 2017 organic growth up 8 percent,” wrote analysts at Barclays in an early morning note. “Real progress has been made on product and factory efficiency, which led to a much higher gross margin than we had expected with these proceeds being reinvested into marketing,” they added, noting the progress the brand had made in the Asian market.

Its a view shared by Robert Burke, chief executive of advisory firm Robert Burke Associates, who believes the company is making some headway in tackling the challenges it faces in the fast-growing handbag market.

"I think it shows signs that it's working but the consumer is moving extremely fast and the brands have to move just as fast today," said Burke. "The consumer is also much more well researched than ever before — they want to know and see and read, and it has to be in the forefront of their minds.

"The handbag market takes a long time, when it comes to positioning, to establish a brand image," he continued. "It moves slower when it comes to consumer awareness and desirability. And people tend to be more brand loyal with handbags than when it comes to ready-to-wear. What’s happened in the last few years...it seems that customers have focused on fewer and fewer brands, where there used to be a lot more variety in the market. It seems to be gravitating towards much bigger brand names. And that’s just a trend of the market."

But Saunders believes the company still faces a number of challenges, particularly as its international business has slowed and affordable luxury competitors like Coach and Michael Kors have struggled to regain market share lost to new brands like Mansur Gavriel.

Going forward, Mulberry needs to carve out more of an international presence, something chief executive Thierry Andretta has marked as a focus for the company as its UK retail stores account for 60 percent of sales. “International remains the focus,” Andretta said in a call with reporters. “We are still fine-tuning our network.”

“The brand still struggles a bit with its identity,” said Saunders. “I think there’s a case for it really trying to firm up in the international mindset, what Mulberry stands for, what position in the market it has.

“If people aren’t clear, it’s very difficult to sell through those products at the premium that Mulberry charges. They do need to really think about the brand image — and the marketing that goes with that, internationally — to really get those sales up across some of those key markets that they’ve tried to expand into."

“They also need to look very carefully at what lifestyle image they’re projecting. It does give a brand more of a chance of succeeding, especially when the bag market is very crowded and very competitive," continued Saunders. "They’re definitely going in the right direction, [but] there’s just a little bit more that needs to be done, just refining and honing that brand.”

Mulberry needs to look at signature bags and create newness, adds Burke. "That is a critical point, creating that desire. Today creating that desire oftentimes is not just marketing, but connecting with the consumer and social media and marketing themselves in a different way. They can certainly play up on their heritage, but they have to appeal to the new and be desirable."

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