When Mulberry released a handbag named after the model Alexa Chung, it became the must-have accessory for “it” girls and was credited with helping the luxury fashion brand emerge from the global financial crisis.
More than a decade later, the label is now facing the prospect of a takeover by Mike Ashley, the billionaire retail tycoon better known for cheap tracksuits and giant mugs.
Mulberry, which is majority-owned by a Singapore-based billionaire hotelier, has so far resisted the swoop by Ashley’s Frasers Group, saying his £83m offer undervalues the brand.
But few expect the pugnacious Sports Direct tycoon to back down, putting one of Britain’s best-known luxury brands at the heart of a power struggle.
If Mulberry’s reputation as a British fashion powerhouse reached its apogee in the supermodel era of the noughties, its popularity has been rather more subdued in recent years.
The company, which was founded by entrepreneur Roger Saul in Somerset in 1971, has seen its share price halve over the last five years. Its market value now stands at just over £78m, down from a peak of £1.5bn in 2012.
Mulberry’s recent troubles can, in large part, be put down to a broader downturn in the luxury market as rising interest rates and the economic downturn have sparked a slowdown in spending by wealthy customers.
“It’s the wider issues that luxury markets are having where they need to elevate their proposition because their consumers are becoming a lot more discerning when it comes to what they buy,” says retail analyst Jonathan De Mello.
“There’s a certain level of squeeze when it comes to even people that have the highest amount of income in the UK.”
Luxury brands are feeling the impact of the so-called tourist tax after Rishi Sunak’s government scrapped VAT-free shopping for tourists in 2020. Mulberry is among a number of retailers that have vocally criticised the move, describing it as a “spectacular own goal” as wealthy shoppers flock instead to Paris and Milan.
The impact of Brexit, a decline in Russian tourists since the start of the Ukraine war and concerns about a spate of Rolex robberies in London have also taken their toll on an industry that is heavily reliant on wealthy tourists visiting the UK.
“Our homegrown brands are more geared towards the home market,” says de Mello. “The UK market is a lot more important to them than it is for LVMH and [Cartier owner] Richemont, which have significant global reach.”
Mulberry is not alone in facing these difficulties. Burberry, which is also UK-listed, is grappling with ailing profits, while Aston Martin saw its shares crash by a fifth on Monday after it warned falling sales in China would take a toll on profits.
But some of Mulberry’s misfortunes are of its own making.
The brand, which charges more than £1,600 for some of its handbags, undoubtedly falls into the luxury category. Yet it is targeted primarily at aspirational shoppers, rather than the super-rich.
As a result, its customers are not immune from the cost of living crisis, nor from policy changes such as Labour’s VAT raid on private schools.
Mulberry’s modest size also means it lacks the marketing and distribution firepower to compete with the French behemoths LVMH and Kering.
Clive Black, head of research at Shore Capital, describes Mulberry as a “pimple on an elephant’s backside”.
“It’s been vulnerable from being such a small and fragile business and in that respect it hasn’t had the strongest constitution to compete in a weak market,” he says.
As a result, Mulberry is now facing fundamental questions about how to turn its fortunes around.
The company last month parachuted in Andrea Baldo as chief executive to replace Thierry Andretta, who held the role for almost a decade.
Baldo is the former boss of Ganni, the Danish brand worn by celebrities including Taylor Swift that has become a must-have label for fashion-conscious millennials and Gen Z.
He is credited with sharpening the brand’s image and scaling up its global proposition, and will be charged with injecting new life into Mulberry, too. His appointment also suggests the British brand may try to target younger consumers.
De Mello warns that Mulberry is limited in how much it can increase its prices as it tries to maintain a broad market position, but suggests bosses could instead focus on upgrading its customers to more expensive products.
More fundamentally, though, Mulberry is hamstrung by its ownership structure. The London-listed company is controlled by Singapore-based Malaysian billionaire Ong Beng Seng and his wife, Christina, who hold a 56pc stake through their holding company, Challice.
The hotel tycoon is known to rub shoulders with the global elite and celebrities, and has a long-standing friendship with Formula One tycoon Bernie Ecclestone and involvement in Nobu, the high-end sushi chain co-founded by Robert De Niro.
But he is now in direct conflict with Ashley, who first took a stake in Mulberry in 2020 and has since increased his holding to 37pc.
Black describes the ownership structure as “tectonic”, while relations between the two major shareholders appear far from harmonious.
Rejecting the bid, Mulberry said Ong had “no interest in supporting the possible offer”, adding that it would push ahead with its plan to raise £11m from shareholders to help shore up its balance sheet.
Frasers hit back, saying it had not been told about the fundraising plans and would have been willing to underwrite the sum in its entirety, potentially on better terms.
The takeover bid reflects efforts by Ashley to move his retail empire upmarket. This began with his takeover of the Flannels department store chain, which Black describes as “Selfridges for normal people who drive high-level Audis around council estates and do various other things in the cash economy”.
The tycoon has also increased his stakes in Hugo Boss and Savile Row tailor Gieves and Hawkes.
“I can see Mulberry fitting in with both Flannels and Frasers so on that front, from a corporate synergy front, there is method in Frasers’ madness,” says Black.
De Mello describes the swoop as “opportunistic”, drawing comparisons with how Ashley has swooped on low valuations for retailers such as Asos and Boohoo.
Frasers now has until Oct 28 to make a firm offer or walk away, but the company has already fired the starting gun on what could be a messy takeover fight.
Ashley has a long history of boardroom tussles. And while he has handed over the day-to-day running of his empire to son-in-law Michael Murray, there’s no doubt that the tycoon’s pugnacity remains a driving force behind the Frasers strategy.
In a statement this week, the retailer said it would not “accept another Debenhams situation where a perfectly viable business is run into administration”, referencing Ashley’s bitter row with the department store chain after his stake was wiped out during its collapse in 2019.
For Black, the key question remains whether the initial £83m is a precursor to an improved bid or whether it will simply trigger a “Mexican stand-off” between two conflicting shareholders.
De Mello adds: “[Ashley] is going to ruffle a lot of feathers at Mulberry as a result of the nature of what he’s doing, but I don’t think he cares too much.”
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