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Does Mulberry's profit warning spell gloom for the luxury sector?

Another luxury brand, another profit warning. But Mulberry’s under performance is merely the move into a more sustainable pattern of growth, writes Ana Santi.

Following hot on the heels of Burberry last month, yesterday it was Mulberry’s turn to shock investors, after wholesale revenues fell 4%, wiping almost a third off the designer brand’s market value.

Mulberry now expects revenue growth for the year to March 2013 to be below market expectations and full year profits will be below last year’s. Analysts have rushed in to call the situation “severe”, but do we all really need to start panicking? No - not yet, at least.

High double-digit growth, year after year, is just not sustainable, not even for the luxury sector. Businesses need to adjust to changes in global market conditions – notably a slowdown in the Chinese economy (we all knew it was going to slow down eventually) – and address the re-distribution of selling channels (as retail outperforms wholesale), which may see profit warnings in the short term, but will ensure long term growth.

For Mulberry in particular there may be other factors the brand can address too. The brilliant thing about Mulberry was that it created the most beautiful, classic, well-made bags at prices that weren’t astronomical, provided that buying a lovely bag was fairly important to you. Five years ago, I bought the classic Bayswater bag (the smaller size) for £395. I still have it and have not bought another handbag since.

In fashion, to have the same bag for five years (that’s 10 seasons) is practically a crime, but such is the quality and (classic) design that I haven’t needed to buy another one. That exact same bag now costs £595, a ridiculous inflation. If I were to update my bag in the next year or so, I’m not sure I could afford to go to Mulberry anymore.

If Mulberry is to charge those sorts of prices, it suggests the brand wants to play with the big luxury boys. The thing is, Mulberry is (or was, at least) in a unique position to trade off a single product: bags. To grow, it needs to broaden its product range. And it is trying to. Mulberry moved its clothing to the ground floor when it opened its New Bond Street store to make it more prominent and it has been showing at London Fashion Week now for several seasons. But its bags are still at the forefront of shoppers’ minds.

And, whilst many luxury brands have been moving into retail away from wholesale for better margins and stronger control over their brands, Mulberry could do worse than strengthen its relationship with UK stockists, who sing the praises of the brand. It’s often a star performer for many multi-brand stores, who are crying out for better service from Mulberry and bigger orders. That’s not a bad position to be in, is it?

Like the majority of luxury brands, Mulberry is going through a transition period as the global market adjusts to economic changes. If it remains true to its values – a classic, beautifully designed and crafted British brand which understands its place in the market – then Mulberry has a great future.

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