Mulberry loses out to Prada in luxury market

One of Mulberry's Spring/Summer 2013 designs (Mulberry)

Profit and margins have been damaged by British handbag-maker Mulberry’s bid to go even more up-market. The leather goods brand reported a 36 per cent drop in half-year profit, in contrast to the Italian designer Prada’s forecast-beating 30 per cent profit jump for its third quarter.

Mulberry’s half-year profit was £10m with gross margins down to 61.3 per cent, compared with 66.2 per cent in 2011. But Bruno Guillon, its chief executive who joined in March, is resolute his strategy will pay off in the long term and vowed to push on with his plan.

Mr Guillon, who previously worked at luxury goods groups LVMH and Hermès, said: “Mulberry has been a fantastic UK success story. But now we are trying to make it a global success story. We have to adapt to attract the luxury international consumer while keeping our existing customers happy.”

First-half sales at the brand which creates bags named after celebrities including singer Lana Del Rey and presenter Alexa Chung, were up 6 per cent to £76.5m. Wholesale revenue was down 4 per cent but retail sales have begun to improve in the last two months.

The slowdown in consumption in China has hit luxury brands but Mr Guillon said the growth is “coming back” and Mulberry is still committed to expanding in the country. It will open its second Chinese store in Shanghai in the next fortnight.

Hong Kong-listed Prada, which also owns sister brand Miu Miu, shrugged off any signs of a slowdown and reported profit of €122.1m (£98m), boosted by Asian consumers.

As part of Mulberry’s drive to raise the brand’s prestige, Mr Guillon plans to increase production at its Somerset factories. At present around 20 per cent of output comes from there but he said: “Within three to four years we plan for all items to be made in the UK, Spain, Italy and Turkey with no products made in the Far East.”

The brand will open a new Somerset factory and is eyeing a third factory in the south west in the medium term.

He said: “We are investing in quality – from design, to product, to talent and stores. We need to catch the new luxury customers.” Mr Guillon pledged the brand would not alienate its existing customer by pricing them out.

Despite the profit decline Mr Guillon’s strategy appeared to win over investors and its shares gained 20p to 1,171p having lost a fifth of their value after two profit warnings earlier this year.