Has the global luxury goods bubble burst? Mulberry shares plunge as it warns Chinese are not buying posh bags


By Adrian Lowery

PUBLISHED: 05:17 EST, 23 October 2012 | UPDATED: 08:26 EST, 23 October 2012

One of British retail’s recent success stories looked to have turned sour today as Mulberry warned investors that profits would be lower than expected this year.

The luxury goods maker – which has used stars such as Alexa Chung to help design its bags – blamed a slowdown in demand from China as it shocked shareholders and the City with the profit warning.

The news from Mulberry follows a similar warning from Burberry that Asian demand was weakening and suggests the bubble in the luxury goods market has burst.

Style icon: Mulberry's Alexa range has been inspired by Alexa ChungStyle icon: Mulberry’s Alexa range has been inspired by Alexa Chung

Mulberry shares, which peaked at 2500p in the summer, plunged 25 per cent or 335p after the announcement this morning to 985p.

Today’s admission that profits for the year to March will be below expectations and below the previous year’s, comes at an unfortunate time for Mulberry: it recently announced plans to open a second factory in Somerset to keep up with demand.

The firm, which specialises in expensive leather bags, blamed lower-than-expected international sales and a 4 per cent decline in Mulberry’s wholesale shipments, taking the shine off a 13 per cent hike in retail sales to £46.5million, including a 10 per cent rise in UK sales.

The warning is a blow to chief executive Bruno Guillon, who only joined the company from luxury brand Hermes in March.

Warning: Iconic fashion retailer Mulberry said that profits would be lower than expected this yearWarning: Iconic fashion retailer Mulberry said that profits would be lower than expected this year

The company’s best known product of recent times has been the Alexa bag – inspired by style icon Alexa Chung – while its Del Rey bag has been inspired by American artist Lana Del Rey.

It upgraded profit forecasts on several occasions over the last year and in June announced a 54 per cent jump in full-year profits to £36million.

But Burberry recently rattled the City with signs of a slowdown in demand in China, although it offered a more reassuring update earlier this month. The blue-chip company’s shares were 4 per cent lower today.

Mr Guillon said the short-term slowing of sales growth reflected a drive to improve the quality of its wholesale distribution network.

Mulberry shares have fallen sharply over the last few monthsMulberry shares have fallen sharply over the last few months

But he said the moves were in the long-term interests of building Mulberry into a global luxury brand.

Sales in its international arm rose by a less-than-expected 41 per cent in the first half of the year, although it is pressing ahead with plans to open up to 20 overseas stores this financial year.

Mulberry said its core business continues to ‘perform well in the context of a more challenging external environment’, with retail sales up 7 per cent on a like-for-like basis.

It is set to start building the Somerset factory within the next few weeks, which will double its UK capacity.


Posted on October 23, 2012, in Economy / Finance and tagged , , , , . Bookmark the permalink. Leave a comment.

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