When Mulberry launched a bag named after 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 brand is now facing the possibility of a takeover by billionaire retail mogul Mike Ashley, known for his cheap tracksuits and giant mugs.
Mulberry, which is majority-owned by a Singapore-based billionaire hotelier, has so far resisted a foray from Ashley’s Frasers Group, saying its £83 million bid undervalues the brand.
But few expect the pugnacious Sports Direct mogul to back down and put one of Britain’s best-known luxury brands at the center of a power struggle.
Although Mulberry’s reputation as a British fashion giant peaked in the supermodel era of the 1920s, its popularity has waned considerably in recent years.
The share price of the company, founded in Somerset in 1971 by entrepreneur Roger Saul, has halved in the last five years. Its market capitalization now stands at just over £78 million, down from its peak of £1.5 billion in 2012.
Mulberry’s recent troubles can largely be attributed to a broader downturn in the luxury market, as rising interest rates and the economic downturn have led to a slowdown in spending by wealthy customers.
“There are broader issues where luxury markets need to step up their offerings as consumers become much more selective about what they buy,” says retail analyst Jonathan De Mello.
“There is a certain level of squeeze even for people with the highest incomes 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 who have loudly criticized the move, describing it as a “magnificent own goal”. while wealthy shoppers flock to Paris and Milan instead.
The impact of Brexit, a decline in the number of Russian tourists since the start of the Ukraine war and concerns over a series of Rolex robberies in London have also damaged an industry heavily dependent on wealthy tourists visiting the UK.
“The brands we produce are more aimed at the domestic market,” says De Mello. “The UK market is much more important and important to them than LVMH.” [Cartier owner] Richemont has significant global reach.”
Mulberry is not alone in facing these challenges. Burberry, also listed in the UK, is struggling with struggling profits; Aston Martin saw its shares tumble by a fifth on Monday after warning that falling sales in China would hurt profits.
However, some of Mulberry’s misfortunes are his own.
Charging more than £1,600 for some handbags, the brand undoubtedly falls into the luxury category. Still, it targets primarily avid shoppers rather than the super-rich.
As a result, their customers are not immune from cost-of-living crises or policy changes such as Labour’s VAT raid on private schools.
Mulberry’s modest size also means it doesn’t have the marketing and distribution firepower to compete with French giants LVMH and Kering.
Clive Black, head of research at Shore Capital, describes Mulberry as “the pimple on the elephant’s back”.
“Being such a small and fragile business, it was vulnerable and therefore did not have the strongest structure to compete in a weak market,” he says.
As a result, Mulberry now faces fundamental questions about how it can turn its fortunes around.
Last month, the company appointed Andrea Baldo as general manager, replacing Thierry Andretta, who held the position for almost a decade.
Baldo is the former boss of Danish brand Ganni, which has become a must-have brand for fashion-conscious millennials and Gen Z, worn by celebrities including Taylor Swift.
He is credited with sharpening the brand’s image and growing its global offering and will also be tasked with breathing new life into Mulberry. His appointment also suggests the British brand may look to target younger consumers.
De Mello warns Mulberry is limited to how much it can raise its prices as it tries to maintain a broad market position, but suggests bosses could instead focus on upgrading customers to more expensive products.
More importantly, Mulberry is hampered by its ownership structure. The London-listed company is controlled by Singapore-based Malaysian billionaire Ong Beng Seng and his wife Christina, who own a 56 percent stake through their holding company Challice.
The hotel mogul is known to rub shoulders with global elite and celebrities and has a long-standing friendship with Formula 1 mogul Bernie Ecclestone and is also involved 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 stake to 37 per cent.
Relations between the two major shareholders appear far from harmonious, with Black describing the ownership structure as “tectonic”.
Rejecting the offer, Mulberry said Ong had “no interest in supporting the possible bid”, adding that it would push ahead with a plan to raise £11 million from shareholders to shore up its balance sheet.
Frasers responded by saying it had not been told of fundraising plans and would be willing to match the sum in full, potentially on better terms.
The takeover bid reflects Ashley’s efforts to move its retail empire upmarket. This began with Black’s takeover of the Flannels department store chain, which he described as “self-sufficient homes for normal people driving high-end Audis around council estates and doing various other things in the cash economy”.
The tycoon 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 from a corporate synergy front, there is method to the madness of Frasers,” says Black.
De Mello describes this rise as “opportunistic” and draws comparisons to how Ashley has navigated 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 for a complex takeover fight.
Ashley has a long history of boardroom fights. Although he has handed over the day-to-day management of his empire to his son-in-law Michael Murray, there is no doubt that the businessman’s pugnacity remains the driving force behind the Frasers’ strategy.
The retailer said this week it “will not accept another Debenhams situation where a perfectly viable business is handed over to administration”, referring to Ashley’s bitter row with the department store chain after its shares were wiped out during the 2019 crash.
The big question for Black is whether the initial £83 million bid heralds an improved offer or will simply trigger a “Mexican dispute” between two conflicting shareholders.
De Mello adds: “[Ashley] “Given the nature of his work, he’s going to piss Mulberry off, but I don’t think he cares too much.”