A slow recovery, but the right strategy
Mulberry Group (LONDON:MUL) has had a difficult couple of years, culminating in the departure of the CEO in March 2014. However, following on from the thesis published in our sector report Challenging the internet premium, we believe that in combination, its focus on product and stores, supported by its recent investment in supply chain management, could prove to be the correct strategy. This is no quick fix, with the benefit only expected to be seen in the year to March 2016. However, its strong balance sheet (£23.4m cash) provides good financial support to the investment.
Brand focus and consumer understanding
Mulberry is proud to be an English brand, in the unique position of being able to boast >50% of its product is manufactured in England. Having focused its creative attentions a little too far up the price architecture in the last couple of years (>£1,000 handbags), it has listened to its core customer base and refreshed its core product portfolio in the £500-800 price bracket, with exciting new styles and colours to be introduced progressively through the A/W14 and S/S15 seasons.
Staff investment
Despite the obvious gaps in senior management roles that the board is currently looking to fill (CEO and creative director), the depth of talent throughout the organisation should not be underestimated and cannot be easily recreated by its competitors. In 2006 the company started an apprentice scheme to train and develop English talent in highly specialist manufacturing skill sets. Of the original 10 apprentices, eight are still with the company, some now in management roles, reflecting the long-term commitment of the firm to its employees and vice versa.
Well invested stores, plant and systems
Despite its recent poor operating performance, Mulberry has used its strong balance sheet, and the benefits of some admirable working capital management efficiencies, to continue to invest in stores, production capacity and systems. With the latter two projects approaching completion, the benefits from future operational leverage (6x geared in FY14) should not be underestimated.
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