Warning of slowdown hitting luxury goods sector

Luxury icons Mulberry and Bang & Olufsen have seen sales, previously resilient, take a recent hit. Picture: Julie Howden
Luxury icons Mulberry and Bang & Olufsen have seen sales, previously resilient, take a recent hit. Picture: Julie Howden
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TWO of Europe’s most revered luxury brands issued warnings yesterday sparking fears that the consumer slowdown may be spreading to the top end of the market.

Luxury goods makers have proven surprisingly resilient in the face of the economic slowdown, though many British and European firms have focused on ramping up their presence in booming emerging markets such as China and India to counter the slack closer to home.

Confidence was hit as British handbag maker Mulberry issued a profit alert, partly blaming a drop in spending by tourists who have been crucial to the health of the sector.

The firm, whose explosive growth of recent years has made it one of the nation’s biggest export success stories, described sales over the last ten weeks as “disappointing”. It warned investors that profits will miss expectations following the post-Christmas slowdown.

Shares in the group slid 17 per cent to 1,024p, while fashion peer Burberry dropped 4 per cent to close at 1,330p.

Meanwhile, Danish manufacturer Bang & Olufsen – whose four and five-figure designer televisions and audio systems sit at the very top end of the market – cut its sales outlook, adding to jitters in the sector.

B&O’s chief executive Tue Mantoni said the market in crisis-hit Europe had been worse than expected in the past six months.

Mulberry, which sells Bayswater handbags for around £1,400 and mint green cotton tweed coats for £1,750, had issued a profit warning in October, blaming a slowdown in Asian demand. The latest alert is a further blow for chief executive Bruno Guillon, who joined the company from luxury brand Hermes last March.

He said efforts to refine Mulberry’s distribution network were in the long-term interests of building the company into a global luxury brand.

“After three years of rapid growth, Mulberry has experienced a year of consolidation whilst we build the foundations for future growth,” he added.

Last year, the firm recorded a 54 per cent jump in pre-tax profits to £36 million after a series of upgrades on the back of strong demand for its Alexa bag and the Del Rey bag inspired by American singer Lana Del Rey. It expects profits for the current year to the end of March to drop 28 per cent. The group recently announced plans to open a second factory in Somerset to keep up with demand.

Mulberry relies heavily on tourists in its 11 London stores. However, recent figures from the Office for National Statistics showed that visits to the UK by overseas residents fell by 1 per cent in January, following two strong months in November and December.

The top end of Edinburgh’s retail market has been equally reliant on high-spending overseas visitors. Jeweller Hamilton & Inches recently reported higher sales and profits as it benefited from strong demand from wealthy Asian customers,

Department store operator John Lewis yesterday posted a rare dip in its sales, as takings in the week to last Saturday fell by 0.3 per cent to £62.9m. Fashion took the brunt, down 6 per cent, year-on-year. Howard Archer, chief economist at IHS Global Insight, said: “The latest John Lewis figures serve as a reminder that conditions remain tough overall for consumers.”