Mulberry: The Outlook

Having got ‘up close and personal’ with Mulberry’s inner-workings, our FD Andy Brown contemplates the outlook for the future in the last of this 4-part instalment.

As we have previously explored, there have been a number of factors correlating with the profitable and successful times in Mulberry’s recent history.

English heritage VS international growth

Three week’s ago, Johnny Coca revealed his third collection for 2017 Autumn / Winter at London Fashion week, developing on Mulberry’s English identity. As anticipated, the collection received an extremely positive response. Mulberry has made plenty of noise about the fact they’ve opened a second factory in the UK and their 2016 rebrand to “Mulberry England” has focused consumers’ attention on English heritage like never before. Comparatively, their historical investment in new international stores could not achieve the success they wanted and the expansion model was curtailed.

Affordable luxury VS exclusive luxury

Bruno Guillon’s ambitious pricing strategy attempted to reposition Mulberry into the league of some of luxury’s strongest powerhouses. In doing so, he hoped to attract a new customer base with more to spend, outside of their already loyal audience. Sadly, this has not proven to be successful. However, since Godfrey Davis spoke of returning to the more familiar price point – which purposefully opens up its doors to a wider customer base in terms of affordability – the financials are bearing good fruit.

Omni-channel VS bricks & mortar

There has been a significant investment in the Mulberry store network over recent years which has meant that approximately 30% of stores are less than three years old. In the short to medium term, the Group plans to open fewer stores and focus on improving the digital retail channels it has to offer in order to match customers’ rapidly evolving buying behaviour. Approximately 50% of the Group’s digital sales are now executed on mobile phones and tablets, whilst two thirds of searches are made using these devices. In the last 6 months the share price has broken through a 42 month high and is not far off double its’ recent low of 577 in October 2014. When the April – September ’16 results were released, digital sales were up 32% accounting for 14% of revenue.

So what are the lessons to be learnt?

Firstly, know your strengths and why your customers return to make repeat purchases. Customer retention and loyalty is lucrative and often provides a preferable “return on investment” than new sales / new business. Carefully consider your price point and proceed with due diligence before making significant changes.

Secondly – we must change with the world around us. In 2013 Mulberry’s strategy was focused on production (hence the new factory), the global distribution network and new international stores. However, recent sales growth has come from digital and omni-channel sources so let’s not be afraid to embrace changes in our customers’ behaviour. We must continue to move with customers to facilitate their purchases, we cannot expect them to conform to our preferred methods.

I’m a big believer in the adage “turnover is vanity, profit is sanity and cash is king” and I’ll be watching to see how Mulberry realise their ambitious vision “The Board’s long term objective is to grow Mulberry as a global luxury brand, offering unique and desirable product at the best value for price.”

The Group has said it considers revenue growth as the “key performance indicator” to measure this long-term objective. However, if ever there was a market for vanity to be endorsed, surely it would be luxury fashion! Hopefully the second half of 2016/17 will prove more profitable than the first half; in the 6 months to 30 September 2016 Mulberry recorded a small operating loss of £0.641m (-0.86%).

However, with the combination of Thierry Ambrose, Johnny Coca & Neil Ritchie bringing their breadth of experience to the table for the foreseeable future, the current outlook is very positive. I am excited and hopeful to see how 2017 will fare for my favourite British luxury brand.

As I have provided commentary on the share price in these blogs, a little “Easter egg” for any budding investors to finish with; Personally, I think it will be interesting to see when the Mulberry share price can breach the 1175 – 1190 range; which may be a level of resistance in the market.

I would currently have Mulberry stock down as “buy”, but if in Q2 2017 the share price passes 1200, I would hope it might continue to make a charge and build on some of the investment and lessons of the last 5 years. Here’s hoping Mulberry, we here at Salad, and you at home are able to speculate to accumulate in 2017!

Thanks for reading.

Photos by Mulberry.

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