LONDON — As part of its ongoing international expansion, Mulberry is taking direct control of its Asia business via a partnership with its owner Challice Ltd., a division of Club 21.
The British accessories brand, which saw a 9.9 percent uptick in first-half revenue following the debut of creative director Johnny Coca, said it had formed a new company, Mulberry (Asia) Ltd., to operate its business in China, Hong Kong and Taiwan.
Challice owns 56 percent of Mulberry, while Club 21 had been distributing the brand in the region under a franchise agreement. The new deal will initially see four stores, a wholesale and omnichannel network — including a Mandarin Chinese web site — in local currency.
Mulberry, which owns 60 percent of the share capital of Mulberry (Asia) Ltd., plans to invest 3 million pounds, or $3.79 million, in additional regional marketing support over the next two years. It also plans to invest 2 million pounds, or $2.6 million, in strategic investments in north Asia, linked to the new company with Challice.
It said the new company would be loss-making in its first two years before moving into profit, and its results will be consolidated into Mulberry’s financial statements.
“This gives us a competitive advantage, and we can accelerate our omnichannel efforts there. Franchises are not the perfect way to optimize growth in the region,” which represents more than 50 percent of all luxury customers, said Thierry Andretta, Mulberry’s chief executive officer.
“We’re already an omnichannel business in Europe and have moved into the U.S. And we’re appealing to a new generation, a digital generation,” he said in an interview, adding that Mulberry has also launched a dedicated web site for the Korean market.
In the first half, digital sales at Mulberry were up 32 percent, accounting for 14 percent of group sales. During the period, Mulberry’s Covent Garden store was relocated to a larger, more prominent location, while a House of Fraser digital concession was launched.
Mulberry saw first-half revenues climb 9.9 percent to 74.5 million pounds, or $102.1 million, following Coca’s debut as creative director, with nine new bags launching since he took over. That compares to an 11 percent decline in the same period last year.
Andretta said three of Coca’s new bags are already among the brand’s top 10 bestsellers. They are the Clifton, Bayswater zip and Issy styles. Small leather goods also saw good growth, according to the company.
He said Coca was “entering more and more into the DNA of the company,” while he believes the brand offers the best value for price in the luxury industry. About 70 percent of Mulberry handbags are priced in the 500 to 995 pounds, or $632 to $1,257, range.
Honor Strachan, lead analyst at Verdict Retail, said Coca’s “modern totes and bucket bags have improved the desirability of Mulberry’s offer, appealing to a new, younger shopper who’s demanding more on-trend innovative pieces, but with the craftsmanship and quality credentials that the brand continues to leverage and showcase.”
She added Mulberry needs to keep a beady eye on investment in product design and creativity “so the brand stands out in the increasingly difficult and crowded Asian market.”
The company notched a small loss in the six months to Sept. 30 of 342,000 pounds, or $468,540, compared with a profit of 120,000 pounds, or $184,800, in the corresponding period last year.
Mulberry said the swing to loss was due to increased investment in product and additional currency exchange costs on foreign subsidiaries.
The weaker pound has been a mixed blessing for Mulberry, which has seen sales at its U.K. stores climb from foreign tourists taking advantage of currency fluctuations. It has also meant those shoppers are not buying in their own markets.
The weaker currency has also meant higher input costs to U.K. production — the company produces its high-end accessories at its own factories in Somerset, England — and higher running costs of its overseas subsidiaries.
Andretta said next year should be better as the group has hedged its currency positions through mid-2017. The company is expecting some 1 million pounds, or $1.3 million, in additional costs linked to currency.
Retail growth slowed to 4 percent in the first 10 weeks to Dec. 3, with like-for-like sales up 3 percent. The company said tourist spending in London is still robust although domestic demand has softened in recent weeks, which Andretta attributed to delayed Christmas shopping.
Investors were unimpressed, with Mulberry’s shares down 3.4 percent to 10.62 pounds, or $13.42, in late-day trading.