Mulberry’s luxury goods are in big demand and its shares are worth six times what they were a year ago. Rebecca Thomson finds out why
MULBERRY IN NUMBERS
- Number of stores 12 standalone stores, five airport stores, four outlets and 37 franchises
- Full-year profits 2009/10 £5.1m
- Half-year profits to October 2010 £4.7m
- Number of countries 20
- Number of UK employees 740
- Lowest priced product £40
- Highest priced product £3,574
It’s 11am on a Sunday morning on an otherwise quiet Mayfair street, but today there are several celebrities, a paparazzi scrum and two giant red polka dot mushrooms outside the Ballroom entrance of Claridges hotel.
The crowd milling about the entrance is made up of models, actresses and fashion journalists and with so many extroverts in one place, sensory overload kicks in and the only attendee who gets any real attention is a Bernese mountain dog with a beautifully groomed coat. The Mulberry autumn 11 show at London Fashion Week is about to start and the buzz surrounding the event is indicative of the success this luxury brand - now a household name - is enjoying.
Mulberry has managed to generate an extraordinary level of interest over the last few years with clever use of celebrity associations and effective marketing of its English image in international markets. After the plaudits of the show are over, chairman and chief executive Godfrey Davis is one happy man. “It’s a fantastic business, it’s quite remarkable really,” he says.
Remarkable it certainly is. Mulberry started out 40 years ago and its sales figures in the last year complete the picture of a brand coming of age. Turnover is expected to be £120m in the full year to March, and half-year results in the six months to September 30 equated to a 207% surge in profits that grew from £1.5m to £4.7m on like-for-likes that were up 29%.
The stock market has responded with its own recognition of Mulberry’s success, with shares trading at £12 compared with around 200p a year ago. Arden Partners analyst Nick Bubb says: “It’s reached a tipping point in terms of recognition in the City. Its shares are now being valued like other big luxury brands.”
How has Mulberry got it so right? Other high-end brands have done well throughout the recession, with, for instance, revenues at luxury giant LVMH soaring 19% in 2010 to £17bn. But Mulberry is certainly enjoying a moment of meteoric profit growth. The appointment of creative director Emma Hill in 2008 has helped: she launched its biggest handbag success to date - the Alexa, named after model and TV presenter Alexa Chung - and the relationship between the creative and commercial sides of the business is said to be strong. But it took years of hard work to get to this tipping point.
A slow starter
Mulberry was started in Somerset in the 1970s by Roger Saul. Although the business gained a reputation for good design, ultimately it foundered financially with pre-tax losses of £1.7m in 2001. In 2002, Saul was ousted in a boardroom coup after its major shareholder, Challice - a company owned by Singaporean billionaire Christina Ong and her family - called for his removal.
Davis - vice-chairman at the time, became chairman and chief executive shortly after. The company started releasing ‘It bags’, opened its first US store in 2004, moved the main manufacturing base overseas and invested heavily. Under Davis’ stewardship Mulberry has grown to have more than 300 ‘doors’, including 49 company-owned stores - including concessions and the web - plus 37 franchised stores. The number that is quickly rising, and analysts are now predicting pre-tax profits of £18.5m for the current financial year, rising to £25m in the financial year 2011/12.
Its success is down to several factors, and at the core of this is the brand. Mulberry has taken its quintessential Englishness, rooted in the Somerset countryside, and made its message work around the globe. Its first Chinese store in Beijing has just opened, and there are plans for 20 more in the next five years according to the Financial Times. At the time of the half-year results in October there were nine stores in Korea; by the end of this year there will be 17. New stores are planned for Germany, Switzerland and Austria, and sales in the US were up 100% last year. “There’s not a place in the world where the brand doesn’t work,” says Davis. “It’s because it’s different, and it’s the Englishness.”
He says the company invests a lot of time in the brand, focusing on who the target consumer is and making sure everyone in the company has an understanding of that. The idea, he says, is to create an ever-growing number of people who love the brand and who want something made by Mulberry. “There’s a huge worldwide population and it’s about getting that message out with international marketing.”
Part of Mulberry’s appeal, and possibly what’s helped keep people spending on the handbags that still make up the vast majority of its business, is its universality. Its pricing - ranging from £40 for a keyring to £3,600 for a bag - is carefully designed to make sure the products appeal to a wide range of people. “Our pricing is quite important,” Davis says. “We are definitely a luxury brand. But our pricing is quite competitive for our position and that’s deliberate - it gives us a bit of an advantage.” The versatility of the bags for different occasions helps too, making them seem better value and helping the company to benefit from the present economic climate.
Davis explains: “The Mulberry brand is as much about craftsmanship and style as it is about fashion. A brand like Hermès, for example, is all about craftsmanship and style, while another brand might be all about fashion - Mulberry inhabits a middle ground.
“Our products are very desirable but they’re also very versatile, and that means they appeal to a wide range of age groups and attitudes.” It also means they feel like a less extravagant purchase, with the pain of a £600 handbag splurge reduced - so the theory goes - if the product is likely to last years. Ultimately, Davis says, the company can’t make people keep spending - consumers have to choose to do so. “All we can do is not compromise on the quality, offer value for money, design products as best we can and create a nice place to shop.”
The sustained effort has, after years of investment, started to pay off. In 2010 Mulberry reached a tipping point where its extra sales suddenly started producing more profit. “It reached a tipping point in terms of the total turnover and growth overseas - its profitability is now going through the roof,” says Bubb. Once a company’s central costs and marketing costs are covered and a business keeps on growing, more of those extra sales are converted into profit.
The knack, Bubb says, is to get to about £100m of turnover without making all sorts of common mistakes that Mulberry has so far managed to avoid. “It didn’t devalue the brand by extending it to every shop in the country, it kept it exclusive yet fairly within reach in terms of price,” he says. Davis says that, remarkably, every single one of its shops across the globe is trading profitability. One problem is keeping up with soaring demand. Mulberry’s UK factory in Somerset is increasing its production capacity by 30% but it’s still not likely to be enough. A lot of the manufacturing is done overseas in countries like Turkey and Spain, and Davis says the next step is to decide whether a new factory should be built in the UK. While the company would like to invest in Britain, he says there may be too many barriers.
“The Government needs to understand that it’s not about giving people money to set up factories, but about changing the tax structure”
Godfrey Davis, Mulberry
“The next challenge is whether we build another factory in the UK. We’re just starting to talk about that. We would love to make more products here but over the last 10 years the political and economic climate has not been conducive to investing in the UK. We have been investing in things like apprenticeship schemes, but that’s more because we have been bloody minded.”
Davis says the Government needs to focus on changing the tax structure - for example avoiding rises in National Insurance - instead of providing upfront capital. “The Government needs to understand that it’s not about giving people money to set up factories, but about changing the tax structure. It takes a certain number of minutes to make something and it’s the cost per minute that’s important.” If the Government puts up National Insurance, he says, this cost per minute rises.
Moving on up
Growth plans for the UK are limited to refinements of existing stores - moving to bigger premises or a better location, as with the recently opened New Bond Street flagship. International expansion will continue apace, with eight store openings planned for 2011 including four in South Korea alone. A New York flagship store costing between £2m and £3m is opening in October and discussions are ongoing about a store in Saudi Arabia.
Online sales are expected to grow from 7% of the total to 10% over the next year, and the company is rolling out a new platform at the end of 2011 to meet demand. Davis says about half of his store customers research products online before coming in-store to buy them, making an engaging, usable website crucial.
Mulberry’s main challenge over the coming years will be to maintain its focus. If the brand works everywhere and stores everywhere are trading profitably, the temptation could be to expand as quickly as possible. But while Davis’ ambitions are big, he knows that quick returns are not the answer. “We are tiny in terms of the market we have an opportunity to take, but we focus on the things we are trying to achieve in each country rather than getting distracted. At the moment it’s a question of focus. It’s easy to lose focus and if you do, it doesn’t work.”
As the interview draws to close, Davis says he is eschewing Mulberry’s star-studded after-show party in favour of visiting his granddaughter. This is a man with his eye on the nitty-gritty business of running a retail brand - be it luxury or not. While it may be comparatively tiny for now, providing it maintains momentum and focus, this small British player has the scope to give some of the biggest Italian or French international luxury players a run for their money.
A Very English Brand
A plethora of hand-plucked celebrities - those with rosy, English cheeks like Bond girl strumpets Rosamond Pike and Gemma Arterton - are sitting in a forest in central London. Yes, that’s right. They are sitting on giant toadstools, drinking strong English cider as little chaffinches chirp and tweet in the background.
Welcome to Mulberry’s woodland themed Fashion Week party, the hottest ticket in town, thrown by the label to celebrate yet another accomplished autumn collection.
Playing on its quintessentially British heritage, Mulberry catapulted a series of super-commercial, quirky yet wearable 1970s inspired looks onto the autumn 11 catwalk last week.
But as much as the designs were fun, and the star-studded after party even more so, fashion is a serious business.
Over the coming year themes of provenance, authenticity and heritage will be - subconsciously at least - at the top of any discerning shopper’s list. After the dust of an economic downturn settles, customers look for product they have faith in, product with the nostalgia factor, and purchases that will stand the test of time. It’s Mulberry’s consistency in its premium (but not ludicrously high) pricing, the quality of its product, along with a strong management team, and of course its ‘It handbags’, which helped the brand see the wood for the trees during the recent recession. If Mulberry continues to embrace its roots then only more green shoots lie ahead.
Laura Weir is the fashion editor of Drapers magazine. Follow her on Twitter @laura_weir