Mulberry has slipped into the red after investing more in products, but sales rose strongly as the British handbag maker’s new collection helped it win back customers.
The company announced it was setting up a new business in Asia, a key luxury goods market, as it reported a loss before tax of £500,000 for the six months to 30 September, compared with a profit of £100,000 a year earlier. The firm blamed increased product investment of £1m and additional foreign exchange costs on overseas subsidiaries.
Mulberry launched its first collection masterminded by its new creative director, Johnny Coca, with the full range going on sale in August. There are nine new bags, including a revamped Bayswater, one of its bestselling bags. It has also cut prices to win back customers alienated by a disastrous move upmarket in recent years.
Money spent on creating the new collection, with modern totes and bucket bags, had a negative impact on gross margins but it attracted more customers and turned Mulberry’s wholesale business around, where revenues rose 10% against an 11% decline a year earlier.
As Mulberry opened a new store in Covent Garden in central London, retail sales climbed 10% to £55.4m in the first half, with like-for-like sales up 7%. UK retail sales rose 7% on a like-for-like basis to £45m, while international sales were up 10%.
The chief executive, Thierry Andretta, said the investment in product design was paying off. “Mulberry’s new collection under the creative direction of Johnny Coca has been well received by our existing customers and a new audience … The new business announced today in north Asia will progress our strategy of developing our retail and omni-channel model in key luxury markets.”
Mulberry struck a deal with its majority shareholder Challice to form a new venture to run its business in China, Hong Kong and Taiwan. Mulberry Asia is expected to be lossmaking for two years before moving into profit.
Andretta warned that the UK and global outlook had “become more uncertain since we last reported”.
The weaker pound has drawn more tourists to London, boosting Mulberry’s sales in the capital, but demand from UK customers has softened in recent weeks.
The sharp drop in sterling has also translated into higher raw material costs for Mulberry’s UK production and higher running costs of overseas subsidiaries. Its two factories in Somerset, south-west England, manufacture half its bags. Mulberry reiterated its “made in England” strategy.
For the full year, Mulberry expects additional costs of £1m due to currency movements and £2m for investments in north Asia.
Aside from handbags, Mulberry is investing in shoes and ready-to-wear products.
Honor Strachan, lead analyst at consultancy Verdict Retail, said the new collection appealed a “new, younger shopper demanding more on-trend innovative pieces but with the craftsmanship and quality credentials that the brand continues to leverage and showcase”.
She added that “investment in product design and creativeness must continue so that Mulberry stands out in the increasingly difficult and crowded Asian market”.
