By Neil Maidment
LONDON (Reuters) – British luxury fashion group Mulberry defended its plans to move further upmarket, saying it was crucial to expansion plans in Asia, where local shoppers and outbound tourists are still spending heavily on top-end lines.
Mulberry, known for its Bayswater and Alexa handbags, makes over 80 percent of its sales in Britain and continental Europe, and has been hit hard recently by weak consumer spending there, as well as cooling demand from Chinese shoppers and tourists.
After issuing two profit warnings since October, the firm posted an expected 28 percent drop in annual profit on Thursday.
Chief Executive Bruno Guillon has responded in part by taking the group a little more upmarket from its traditional position of “affordable luxury.”
Mulberry hiked prices by 12 percent in November and has launched more handbags priced over 1,000 pounds ($1,600), which it says have gone down well in Asia and the United States.
However, the move has attracted some criticism, and was reportedly a factor behind the decision of highly-acclaimed Creative Director Emma Hill to announce earlier this week that she planned to leave the business.
Guillon played down the shift upmarket, saying 60 percent of products were still on sale for less than 1,000 pounds.
The group was having a tough time because it did not have a high enough profile in Asia, and was addressing that by opening more stores in the region, he said.
“Greater visibility in Asia will allow us to benefit from tourist traffic in Europe and the U.S. at the same time as growing our business locally,” he said.
The Frenchman, who has just returned from China, added that while growth in demand for luxury products had slowed in Asia, the opportunities there still far outweighed those in Europe.
Several luxury groups, such as British rival Burberry , have said that while demand has slowed from so-called “aspirational” luxury shoppers in China, it remains strong among the very wealthiest customers.
Mulberry, which opened 17 stores in the year ended March, plans to open 15-20 in its new financial year, pinpointing prime locations and flagship stores in Asia and North America, where it has 42 and 6 stores respectively out of a total of 118.
The group is also using higher quality materials and limiting volumes of best sellers to maintain exclusivity.
“We don’t think that the long-term goal of becoming a global brand is beyond Mulberry and therefore we would expect the market to support the shares at around these levels,” said Panmure analyst Philip Dorgan, adding he disagreed with the view Guillon was pushing the firm too upmarket, too quickly.
Mulberry shares, which have more than halved in value on a year ago, were down 0.4 percent to 945 pence at 6 a.m. ET.
The group posted pretax profit of 26 million pounds for the year ended March on a 2 percent fall in revenue to 165 million.
Retail revenue for the 10 weeks to June 8 was up 9 percent, with like-for-like sales up 6 percent, it said.
(Editing by Kate Holton and Mark Potter)