Mulberry Profits drop following Price Hike

Posted on 17 June, 2014 by Kirsten Kennedy

As consumer confidence continues to improve, luxury retailers have seen a distinct upturn in sales, with seasonal events such as Christmas and Easter coinciding with a far greater consumer spend than has been seen in several years. However, not all have managed to reach the performance achieved in the years before the financial crisis, with luxury handbag firm Mulberry this week posting a somewhat disappointing annual report.

Mulberry-Profits-drop-following-Price-Hike

In the year to the 31st March, pre-tax profits fell by almost 50 per cent from £26 million in 2013 to just £14 million. And although total retail sales rose by 2 per cent to £109 million, this was largely due to the impact of new store openings in emerging markets such as China – demonstrated by the fact that like for like sales, which do not take into account stores open for less than a year, plunged by 3 per cent.

Furthermore, wholesale sales contracted by 6 per cent to £54.5 million, a situation which the company expects to worsen this year. According to the report, Mulberry is predicting that wholesale sales will yield a double digit decline in the 2014-2015 financial year.

Mulberry has largely blamed the poor results for a decision made by former chief executive Bruno Guillon, who stepped down from his position in March of this year. In a bid to enter the ultra-luxury goods market controlled by brands such as Chanel and Gucci, Mr Gullion embarked upon a price raising campaign as he believed many of Mulberry’s key target consumers were upgrading to the more expensive brands.

Yet this campaign backfired spectacularly as the results show, with the desire for exclusivity in fact alienating a large number of loyal customers. Therefore, Mulberry has now pledged to cease focusing on handbag ranges costing £1,000 or more and launch a more reasonably priced range costing between £500 and £800.

Godfrey Davis, executive chairman of Mulberry, said; “We are taking steps to restore the business to growth by creating desirable new product across the entire Mulberry range whilst continuing to invest for the longer term.”

According to Mr Davis, the brand’s new “Tessie” handbag collection, which launched in the past few weeks with a starting cost of £495, is already “proving popular” with customers. However, this contrasts with industry data for the 10 weeks to the 7th of June, which indicates that like for like sales had fallen by a further 15 per cent.

Retail research company Conlumino believes that the luxury brand’s poor annual report is purely a result of its desire for exclusivity, and could even stand to damage its reputation into the future.

In a statement, it said; “These results, which will come as no surprise, show that Mulberry continues to suffer the consequences of its misguided strategy to align itself with the ultra-luxury likes of Prada and Fendi.”

 




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