Burberry and Mulberry were founded more than a century apart. Yet the only two London-listed British luxury brands currently find themselves with much in common, being at an inflection point as they embark on turnarounds under new bosses having lost their way in recent years.
Both have been marred by profit warnings and dwindling sales. Mulberry — famed for its leather handbags such as the Bayswater costing from around £1000 — was “once a flourishing accessible luxury brand” said Luca Solca, a luxury goods analyst at Bernstein. However it “went for an ill-conceived ambition to move upmarket” that “almost annihilated it” amid a broader slowdown in luxury spending.
This is something that Burberry — known for its £2000 trenchcoats and checked scarves — is also guilty of, with it “losing much of its British character . . . and moving too high in the price of handbags in the post-pandemic [luxury] boom”, he adds.
In July, both lossmaking brands parachuted in new chief executives after their predecessors were ousted. Joshua Schulman, a former chief executive of Michael Kors, Coach and Jimmy Choo, now leads Burberry while former Ganni boss Andrea Baldo is at the helm at Mulberry.
The shift at each comes against a background of slowing growth in the luxury sector following several roaring years during which consumers, in many cases buoyed by pandemic-era savings, were happy to splash out — while brands put prices up.
In many ways their prescriptions for their new brands is similar: this month both promised to lower some prices, cut costs and leverage their British heritage to capture more customers.
Schulman, who was gifted a navy cashmere scarf by staff after he joined Burberry, has swiftly deployed actors including Oscar-winner Olivia Colman and Barry Keoghan, and England footballer Cole Palmer, in a new advertising campaign — “It’s Always Burberry Weather” — promoting its outerwear and scarves.
He has claimed this has already helped to drive an uptick in sales trends as he seeks to refocus the 168-year brand on core products such as its check trenchcoats, as well as increase store productivity and reduce inventory in an effort to “course correct” and “position Burberry for a return to sustainable, profitable growth”.
The company recorded a pre-tax loss of £80mn in the six months to September 28, compared with a £219mn profit the previous year, and an adjusted operating loss of £41mn. Revenue fell 22 per cent to £1.1bn.
Alice Price, a retail analyst at GlobalData, said: “Burberry has suffered an identity crisis in recent years, veering far from its roots as it strove to elevate its standing and compete with the likes of LVMH.”
Meanwhile, Mulberry relied too heavily on its status as a heritage brand to drive growth and it failed to innovate, she said. This “has seen it lose relevance in the increasingly saturated luxury market”, while the brand never quite managed to recreate the success of its Alexa handbag, named after the model Alexa Chung, credited with helping the company buck the recession in 2010.
Its loss before tax widened to £15.7mn in the six months to September 28, from £12.8mn in the same period last year, on sales down 19 per cent to £56.1mn.
Baldo this week promised he would simplify the business and set about slashing about a quarter of corporate roles.
But in sharp contrast to Burberry he also wants to reduce the group’s exposure to China, where consumer demand among luxury shoppers is particularly subdued and many of its stores are losing money.
China was “creating most of the problem”, he said, with Chinese policymakers having recently unleashed a $1.4tn stimulus package to try and boost the world’s second-largest economy. He is seeking to either renegotiate leases or shut lossmaking outlets in the region when they come up for renewal.
His counterpart at Burberry is nevertheless bullish about consumers in the country, arguing that it remained “a very important market” for the company. “Never underestimate the power of the Chinese consumer and their resilience and the long-term trajectory of the market,” Schulman said. “We believe that these are cyclical issues, and that, as they have done in the past, the Chinese consumer will come roaring back.”
Asia Pacific was Burberry’s largest market in the first half, accounting for almost half of group sales. For Mulberry, in contrast, the region represented 16.6 per cent of half-year revenues.
Solca at Bernstein said their contrasting views were down to the fact that Mulberry was targeting aspirational shoppers, who are more vulnerable to shifting tastes and consumption patterns in China, while Burberry says it is committed to being a true luxury player despite pledging to have a broader range of price points.
“What accessible luxury brands need to reckon with is a significantly higher exposure to local Chinese competitors . . . especially if they are weak, like Mulberry. It seems prudent to trim the network as a consequence, and go back to this market once the business is back on track,” he added.
Schulman has insisted that Burberry will continue to be a luxury brand amid analyst speculation that it could become “the British Coach”, referring to the US handbag brand with lower price points than those, say, at LVMH.
But Price at GlobalData said that Burberry “will have to do some heavy lifting to restore perceptions and convince increasingly discerning customers to part with their money”, with only a handful of luxury players, such as France’s Hermès and Italy’s Prada, defying the downturn.
For all the pressure on the luxury sector, their recent travails have inadvertently made them attractive to some.
Shares in Burberry, which pioneered a new breathable fabric for outerwear in the late 1800s, are down around 40 per cent over the past year, giving it a market capitalisation of about £3.2bn.
This has fuelled market speculation that the company was ripe for a takeover bid although Schulman recently told reporters “there are advantages to being an independent luxury brand . . . and there’s a lot more that we can do as a PLC”.
Meanwhile Mulberry was caught up in its own takeover drama as it fended off two conditional offers from Mike Ashley’s Frasers Group, its second-largest investor.
For now both businesses will go through a few more months of pain before aspects of their turnarounds start to bear fruit. They “seem to be embarking on the right strategy”, said Solca.
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