by When Mulberry released a handbag named after model Alexa Chung, it became an essential 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 hopes to be taken over 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 Frasers Group, saying its £83m offer undervalues the brand.
But few expect that tycoon Sports Direct will 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 era of the jeweled supermodel, its popularity has grown significantly in recent years.
The company, founded by entrepreneur Roger Saul in Somerset in 1971, has seen its share price halve in the past 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 largely be attributed to the wider downturn in the luxury market as rising interest rates and the economic downturn have slowed spending by affluent customers. encourage.
“The broader issues facing luxury markets is where they need to raise their offering as their consumers are becoming much more discerning about what they buy,” says retail analyst Jonathan De Mello.
“There is a certain level of pressure on even the highest income earners in the UK.”
Luxury brands are feeling the impact of the so-called tourism tax after Rishi Sunak’s government scrapped VAT-free shopping for tourists in 2020. Mulberry is among several retailers that have vocally criticized the move, and describing it as “a great destination in itself” As wealthy shoppers head to Paris and Milan instead.
The impact of Brexit, a drop in Russian tourists since the start of the war in Ukraine and concerns over Rolex robberies in London have hit an industry that relies heavily on wealthy tourists visiting the UK.
“Our indigenous brands are more focused on the domestic market,” says de Mello. “The UK market is much more important to them than it is to LVMH and [Cartier owner] Richemont, with significant global reach.”
Mulberry is not alone in facing these difficulties. Burberry, which is also listed in the UK, is struggling with sick profits, while Aston Martin saw its shares fall by a fifth on Monday after it warned that falling sales in China would take a toll on profits.
But some of Mulberry’s misfortune is of its own making.
The brand, which charges more than £1,600 for some of its handbags, is definitely in the luxury category. However it is mainly aimed at ambitious shoppers, rather than the super rich.
As a result, their customers are not immune to the cost of living crisis, nor to 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 French behemoths LVMH and Kering.
Clive Black, head of research at Shore Capital, describes Mulberry as “a bell on the back of an elephant”.
“It’s at risk of being such a small and fragile business that it didn’t have the strongest constitution to compete in a weak market,” he says.
As a result, Mulberry faces fundamental questions about how to turn its success around.
Last month the company parachuted in Andrea Baldo as chief executive to replace Thierry Andretta, who had been in the role for almost ten years.
Baldo is the former boss of Ganni, the Danish brand worn by celebrities including Taylor Swift, which has become a must-have label for fashion-conscious millennials and Gen Z.
Credited with sharpening the brand’s image and expanding its global offering, he will also be tasked with injecting new life into Mulberry. His appointment also suggests that the British brand may try to target younger consumers.
De Mello warns that Mulberry is limited in how much it can raise its prices as it tries to maintain a broad market position, but suggests bosses could instead focus on upgrading their customers to more expensive products .
More fundamentally, however, Mulberry is beset 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-term friendship with Formula One tycoon Bernie Ecclestone and ties to 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”, and the relationship between the two major shareholders does not appear to be harmonious.
Rejecting the offer, Mulberry said Ong had “no interest in supporting the potential offer”, adding that it would press ahead with its plan to raise £11m from shareholders to help round out its balance sheet.
Frasers hit back, saying he had not been told about the fundraising plans and would be happy to underwrite the sum in full, possibly on better terms.
The takeover bid reflects Ashley’s efforts to move his retail empire upmarket. This started when he took over the department store chain Flannels, which Black describes as “Selfridges for ordinary people who drive high-end Audis around council estates and do various other things in the cash economy”.
The tycoon also increased his commitments in Hugo Boss and Savile Row tailor Gieves and Hawkes.
“I can see Mulberry being compatible with both Flannels and Frasers so from a corporate synergy perspective, there is method in Frasers’ madness,” says Black.
De Mello describes the swoop as “opportunistic”, comparing it to how Ashley managed to swing low valuations for retailers such as Asos and Boohoo.
Frasers now has until October 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 although he has handed over the day-to-day running of his empire to son-in-law Michael Murray, there is no doubt that the tycoon’s pugnacity remains the driving force behind Frasers’ strategy.
In a statement this week, the retailer said it would not accept another Debenhams situation where a viable business is being run into administration”, referring to Ashley’s bitter row with the department store chain following the end of its bet with due to fall in 2019.
For Black, the key question remains whether the initial £83m is a precursor to an improved offer or whether it will trigger “Mexican independence” between two opposing shareholders.
De Mello adds: “[Ashley] He’s going to ruffle a lot of feathers at Mulberry because of the nature of what he’s doing, but I don’t think he’s too worried.”
