Interesting change at Mulberry... should Coach take note?

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  1. Mulberry sees rocky road ahead as it reverts to lower-priced handbags

    * British luxury brand to drop strategy of moving upmarket
    * 2014 profit to be 26 pct below forecasts
    * Sees strategy change weighing on profit for two years (Writes through, adds Chairman comments, new details)
    By Kate Holton and Neil Maidment


    LONDON, April 17 (Reuters) - Britain's Mulberry could take up to two years to return to profit growth after deciding to scrap an unpopular push into higher-priced handbags and return to more affordable luxury, its acting head said on Thursday.


    Mulberry's push to swap its "affordable luxury" tag for a more exclusive position was led by Bruno Guillon, ousted as chief executive in March after the strategy was undone by its core shoppers turning to cheaper affordable luxury rivals such as Michael Kors.


    After a review, the firm said it would now sell more bags at cheaper prices as it warned investors on 2013-14 profit for the second time in three months, pencilling in a pretax profit of 14 million pounds ($24 million), some 26 percent below market forecasts and almost half what it made the year before.


    "There's a change in emphasis, I'm not dramatically changing things but I'm looking at the needs of what I think is an important customer for us," Interim Executive Chairman Godfrey Davis, a 27-year Mulberry veteran, told Reuters.


    Guillon's pursuit of more exclusive aspirations followed that of larger rivals like Kering and LVMH, respective parents to Gucci and Louis Vuitton, who have also been surprised by newcomers grabbing customers at the lower end of the market.


    Brands such as Michael Kors and Tory Burch, whose bags are priced at a fraction of their more illustrious rivals, are proving increasingly popular, especially with emerging-market customers - the industry's main growth engine.


    Some 60 percent of Mulberry's bags are priced at under 1,000 pounds, with many selling nearer to 700 pounds. Davis told Reuters they would focus on more sales at the 500 pound mark, with a new range due for stores in June.


    "We see the 500 pounds to 1,000 pounds (price range) as being a very important territory and the profile of our range has got a bit skewed toward the top end of that," Davis said.
    "What I am doing is taking steps to address that."

    Davis added that a planned price increase for November had been scrapped and that as a consequence of a bigger focus on lower-priced items, margins would be squeezed, meaning a "material adverse impact on profits" in the short term.


    "In my language when I use the term short term, I mean a year or two," Davis said.
    As well as lower prices, the company will slow its rate of store openings to five in 2014/15 from eight the year before.


    Analysts at Barclays cut their forecast for 2015 profit before tax by 42 percent to 11 million pounds.


    Guillon, who joined Mulberry in March 2012, had overseen an early rise in the company's stock value to 1.5 billion pounds before three profit warnings in 18 months took their toll, pushing its value down to around 425 million pounds.


    The company, which is 56 percent owned by Singapore billionaires Christina Ong and Ong Beng Seng, is still searching for Guillon's replacement.


    Davis would not comment as to whether Emma Hill, the creative director behind the Alexa and Del Rey bags which can sell for up to 4,500 pounds, would return to the group. Hill quit in September amid speculation she did not agree with Guillon's strategy.


    Shares in Mulberry, which are down 25 percent on a year ago, were up 1.1 percent to 717.5 pence at 1233 GMT


    ($1 = 0.5955 British Pounds) (Editing by Erica Billingham and Sofina Mirza-Reid)


    Original Link: http://www.reuters.com/article/2014/04/17/mulberry-group-idUSL6N0N919K20140417
     
  2. Thanks for posting this. I think it's very timely and, yes, Coach should pay attention.
     
  3. #3 Apr 18, 2014
    Last edited: Apr 18, 2014
    I think consumers are tired of the ever-increasing prices of brands like Chanel, LV, and Gucci and the ever-decreasing quality. A $300-$400 Michael Kors bag (and you can often get them for even less) with nice feeling leather and sturdy hardware looks really good right now next to a $1000+ canvas bag.
     
  4. You mean maybe now I can afford an Alexa?
     
  5. I will be in line right behind you for that Alexa ^^
     
  6. 500 British Pounds is still over $800 US, so that's still pretty pricey compared to Michael Kors, Coach, or Tory Burch.
     
  7. There have been some very interesting discussions about Mulberry's unwise venture into trying to turn the brand into something similar to LV or even Hermes. I think their CEO was quite arrogant and took a company that was thriving and just drove it in the ground in record time.

    It's not working and they're losing loyal customers.

    I think some brands still long for the heydays of the 2005-2008 market when people would pay a ridiculous amount for a handbag--and I realize the term 'ridiculous' is flexible based upon what you are comfortable paying. Consumers are tired of getting fleeced with these increased prices--there are simply too many other alternatives. Also, many people who are affluent and used to paying more have actually turned to contemporary designers (this was part of a study on the luxury market) because they don't see the value in higher prices, either.

    I personally refuse to buy from any brand that increases their prices simply to price people out of the market or make the bag more 'exclusive.' The higher prices don't make the bag more valuable-it's a cheap marketing ploy with a high price tag IMO. While some people may go for that "I need to buy this before the next price increase," I prefer to take my business to a company that appreciates my loyalty by providing a quality product at a decent price.

    Let's hope Coach learns from Mulberry's missteps without sacrificing its own stock and its loyal customer base.
     
  8. Here's an article that ran a month before the CEO stepped down...

    http://www.dailymail.co.uk/femail/article-2550629/How-Mulberry-got-big-boots.html

    The point regarding raising prices and underestimating the intelligence of the brand's customers was noted. Hopefully Coach will pay close attention because there are just too many other alternatives in the market such as MK, Kate Spade, Tory Burch and others. Coachies are a loyal bunch but we aren't fools.
     
  9. Thank you for posting this article. It is very interesting and I do hope Coach takes note. The market for luxury items continues to decline as inflation hits other areas of the economy. I wouldn't mind price increases for bags that are better made, but I have a huge problem paying $400+ for ANY bag that isn't going to stand the test of time.

    I am not sure when it became okay to even sell a $300 bag that you have to baby and care for more than your own children. If I buy a $1,000 bag, I better be able to pull that sucker out of a dust bag five years from now and not blink twice. I think consumers are more thoughtful and have more options than ever. And some of these CEOS need a serious reality check. I don't know what market they are looking at, but wealthy people did not get wealthy by spending $200+ dollars on a Coach white ribbed tank top. LOL.
     
  10. This is pretty much my feeling about LV as off late. I used to love that brand. Now, not so much. The price increases have gotten out of hand. Almost $1000 for a Speedy? No thank you. A Speedy was like $500 when I first got into LV. The quality isn't what it used to be from what I hear. Plus, my husband's Brazza wallet (that I paid a small fortune for) didn't last long at all. The stitches started coming loose. The edge paint started to peel, and the canvas itself actually started to chip! I replaced it with a Coach Accordion Zip Wallet in Saffiano leather. That is holding up so much better, and it was a fraction of what I paid for the Brazza.