Despite the obvious ongoing opportunity the global luxury market is becoming more difficult for luxury retailers to navigate.

Despite the obvious ongoing opportunity the global luxury market is becoming more difficult for luxury retailers to navigate.

While the departure of Bruno Guillon from Mulberry may not be a huge surprise given the poor performance of the firm since he took over, it reflects a broader problem faced by luxury companies.

Mulberry is far from alone in facing shrinking profits. LVMH and Kering both reported slumps in profits in January and February respectively.

Even Hermes does not appear to be immune after warning over profitability in March while Prada has been the latest firm to issue a profits warning in the first week of April.

Although China is often seen as the root and cause of all things in the global luxury market currently, the difficulties currently faced are not exclusively Chinese.

Mulberry has only a handful of stores in China and, just weeks before his departure, Guillon was discussing a Mulberry flagship store in Shanghai planned for 2015.

For Mulberry many problems stem from Guillon’s attempts to make the brand global and exclusive, alienating some of its established UK customers.

Cancelled orders in South Korea and a damaging Christmas discounting policy in the UK have added to Mulberry’s woes.

Hermes, meanwhile, has been hit by the plummeting value of the Japanese yen, despite putting up Japanese prices by 10% last year.

Nevertheless China remains significant, not least because of the level of exposure faced by luxury retailers who have expanded their store presence aggressively over the last decade.

Both Kering and LVMH have reported slowing sales in China, scaling back expansion plans as a result. For Prada China has also been crucial in driving down profits, although the firm also cites European sales as a problem too.

As well as a weakening economic outlook Chinese luxury faces a government-led antipathy towards flashy luxury accessories, with practices such as gift-giving undermined by anti-corruption drives.

China’s outlook, however, remains strong. The 11.8% year on year retail growth reported for February undershot expectations but remains the envy of most markets.

Burberry has continued to do well in China as has Versace, which recently reported a 13% rise in sales there.

What is apparent is that the Chinese market is changing. Where the last decade saw shoppers flocking to big and brash items bedecked in highly visible branding, consumers are becoming more sophisticated in seeking out less visible labelling.

This is partly driven by anti-corruption measures but it also replicates other markets where the saturation of certain brands has fed more subtle tastes.

In Japan for example, a comfortable majority of women own a Luis Vuitton bag, although perhaps not the 94.3% widely reported. Standing apart requires a step up the value chain.

Another change is the burgeoning online opportunity. Historically the prevalence of counterfeits has put consumers off buying branded goods online in China.

However, as more and more retailers open official online stores or storefronts through ecommerce providers such as Alibaba the threat of fakes has diminished.

Equally, even if sales in China are at risk of languishing, sales to Chinese consumers in other countries are no doubt continuing to rise.

According to World Tourism Organisation figures China accounts for the world’s highest volume of international travellers and the highest per capita spending abroad.

In 2012 the Chinese spent a total of US$102bn overseas, of which 65% was on shopping.

Brand houses that have invested heavily in serving Chinese consumers in their home markets have reaped rewards without the exposure of mass mainland store openings.

One challenge that luxury will encounter as China grows in confidence is that of home grown brands. A small but significant industry that caters to national identities and local tastes is emerging.

But while there are some problems in China, Kering’s decision to rebrand from PPR as well as the acquisition of Chinese labels such as Qeelin is a reflection that, despite short term hiccups, luxury in China is here to stay.

  • Jon Copestake is chief retail analyst at The Economist Intelligence Unit