Mulberry
A portrait of British manufacturing in uncertain times
As long-standing advocates of the British luxury leather goods brand, Mulberry, we were saddened to hear the recent news of their announced plans to cut 25% of its 1,400 worldwide workforce. With the vast majority of those employees working in the UK, this loss will cause a significant blow to the UK fashion industry, and deeply impact the community in Shepton Mallet, Somerset.
British Craftsmanship
Mulberry is the largest manufacturer of luxury leather goods in the UK, founded in Somerset in 1971. A story of classic entrepreneurship; started around the kitchen table by Roger Saul who was given £500 by his mother to bring to life an idea for a belt and choker brand. His sister designed the Mulberry logo, an ode to the Mulberry tree-lined path Roger Saul walked along to school.
Now, a 600-strong team of craftsmen and women - many of whom work side-by-side with members of their family - produce around 2,800 bags a week, which amounts to 50% of Mulberry’s total bag production.
To ensure the brand has skilled leatherworkers that can meet manufacturing demands they have committed to nurturing and developing talent, which has also been integral to support the future generations of UK's leatherworkers.
The Mulberry Apprenticeship launched in 2006 through a government-approved Leather Goods Manufacturing qualification in partnership with Bridgwater & Taunton College. Apprenticeships such as these are very special and rare. Through thoughtful communications and events such as February's launch of the brand’s responsibility approach: Mulberry Green, the Made to Last programme (now called The Mulberry Exchange) saw part of the factory and its workforce transported to London’s Bond Street. Through these efforts, Mulberry has embarked on elevating the role of the typically undervalued and often overlooked skilled factory workers.
A business built on heritage also needs to sell. Without the brand’s ability to grow sales there would not have been the need to increase the number of skilled leatherworkers to produce bags. This makes us aware of the direct link between heritage fashion craftsmanship and today’s retail landscape.
Image via Mulberry
Iconic Design
Mulberry is revered worldwide due to its 'British heritage' and iconic designs thanks to designers such as Nicolas Knightly, a Ravensbourne College graduate, who created The Bayswater bag. After this successful stint at Mulberry and following 12 years as Louis Vuitton’s design director of leather goods, Knightly launched his own brand Mallet & Co in 2015.
In 2015 Johnny Coca took up the role as Creative Director to oversee the ready-to-wear, leather goods and accessories collections as well as brand image and the evolution of Mulberry’s legacy. The Spanish designer - student of both architecture and design with a fascination of mathematics and engineering - has consistently created the most covetable accessories throughout his long career, previously working with Phoebe Philo at Celine and Marc Jacobs when he led the design team at Louis Vuitton. During his time at Mulberry, Coca pushed the brand to experiment with see-now-buy-now consumer models and playful marketing concepts alongside designing two new bag families the Amberley and the Iris. Coca sadly announced his departure from Mulberry on 17th March 2020 and has since returned to Maison Louis Vuitton, where he began his career as a Leather Goods Designer, to head up the department alongside Creative Director Nicolas Ghesquière.
Due to exceptional design talent, Mulberry retained brand identity whilst - as Johnny Coca stated at the Made to Last launch - ensuring 'today's modern woman and men on the streets needs are met'.
Coupled with the brand's commitment to heritage craft skills, Mulberry has won the hearts of many who believe the brand to be a beautiful portrait of modern British manufacturing. At Black Neon Digital, we even have Make more Mulberrys' as one of our mantras to help others build businesses with integrity. So needless to say, this recent news of Mulberry’s need to make staff cuts made us question what in this 'new normal' age is the best approach to business?
Mulberry Spring 18 Campaign featuring the Amberley Satchel and model Adele Taska. Still life styling by Andrée Cooke working with Johnny Coca and Baron Osuna (Image Director ) from Mulberry and Creative Director Andreas Neophytou from Spring.
Financial Pressures
Despite significant growth in Asia, Mulberry reported losses of £11 million in November 2019.
This event occurred months before the Covid-19 pandemic had taken effect, the pressures of the subsequent global lockdown have now pushed the brand to enter into consultation with the aim of making 25% of their workforce redundant. On 24th March 2020, Mulberry announced that they expected to post profits in the second half of the current financial year, but as a result of the lockdown, it now expects a small loss for the period.
Yet the company also stated they had a robust balance sheet with net cash assets of £8.8m, plus additional liquidity.
This raises the question if their current position is 'net cash on hand and [our] borrowing facilities remain undrawn' why are they proposing they need to lose 25% of their workforce, the very foundation upon which they are built. This will also presumably include losing a significant proportion of the 600 skilled craftspeople in their Somerset factory.
The decision is not as black and white as it may seem; there are many fashion businesses in this situation right now, who have to make the (albeit simplified) decision between;
Do we act now to protect the future of the business, making sure the financial position is as stable as possible for the short and long term? This in the long term could mean being able to re-employee staff.
Do we act now to make sure during the short term employees are paid (regardless if there is a need to actually produce stock or work in shops), whilst using any cash that may be in the business? In the long term this would mean staff may lose their jobs as the business has no money left to pay them and less money coming in from sales.
This is clearly not an easy decision for any business to make.
We spoke to Nick Found, Senior Analyst, Retail Economics, to get his expert view.
“The market for Clothing & Footwear has ultimately shrunk during the pandemic. A recent (nationally representative) consumer survey by Retail Economics shows that a fifth have delayed spending on Clothing & Footwear – more so than any other retail category.
This could suggest pent up demand, but with fewer opportunities to go out and socialise, retailers across the category are grappling with mountains of unsold spring-summer stock. This is leading to discounts – a bitter pill to swallow for any retailer, but particularly smaller retailers and luxury players.
Ballooning inventory has huge implications for balance sheets and working capital. The need for cash to support finances is unlikely to entirely resolve itself through store sales in the coming months, as shoppers are nervous about going back to shopping destinations after lockdown. Our research shows that over a third of consumers will not feel comfortable shopping in any physical locations as the lockdown restrictions begin to ease. Those that are comfortable favour local stores – not your typical mainstay for luxury players such as Mulberry in flagship destinations.
Instead, retailers in the sector are having to reappraise their costs and focus on supporting online sales. Mulberry cutting its workforce does not undermine the quality of product crafted at Somerset. The cutting of jobs reflects the reality of operating in a smaller market, with lower prospect of tourism spend.
During the financial crisis, luxury players were able to find growth opportunities overseas to ride the storm in the UK, but the global nature of the coronavirus pandemic makes that opportunity less likely.
Retailers are having to batten down the hatches with a forensic approach to costs over the next year. This is critical to ensure longer-term survival, with the industry likely to emerge smaller but more resilient.”
Although the long term impacts Covid-19 are not yet known, Mulberry stated that 'In spite of the good performance of our sector-leading digital and omni-channel platform, and our global network of digital concessions, the shutting of all our physical stores has had, and will continue to have, a marked effect on our business.'
Chief executive Thierry Andretta said: “We reacted swiftly to manage the impact of Covid-19 and continue to execute a well-developed plan to manage capital, reduce costs and maintain a robust liquidity position.
“Launching a consultation process has been an incredibly difficult decision for us to make but it is necessary for us to respond to these challenging market conditions, protect the maximum number of jobs possible and safeguard the future of the business.
“We remain confident in the strength of the Mulberry brand and our strategy over the long term.”
Most large fashion houses like Mulberry are required to perform favourably financially for their shareholders. Mulberry Group plc is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Which means they have an obligation to produce financial reporting for the benefit of shareholders which is also accessible to the general public.
Who are Mulberry's shareholders?
In June 2017 Mulberry set up a funding vehicle with Challice, the Singaporean company run by billionaire Christina Ong, to propel its growth in Asia. Challice currently holds 56.14% of Mulberry’s shares.
The situation caused by Covid-19 comes after a previous financial blow due to the collapse of House of Fraser who had debts of close to £1bn. Mulberry were reported as one of 'more than 1,000 suppliers who will not receive any money from the company’s administrator, EY, which was called in ahead of the sale of the retailer to Mike Ashley’s Sports Direct for £90m.'
Mulberry stated in August 2018 they expected to lose £3m in profits due to House of Fraser’s collapse and later in June 2019 reported 'it had taken a £2.1 million hit from the collapse of House of Fraser, adding to general weakness in its “challenging” UK domestic market.
Earlier this year on 3rd February 2020 Mike Ashley's Frasers Group PLC (previously known as Sports Direct) announced they had acquired a 12.54% stake in Mulberry.
The Company's audited results for FY20 are currently expected to be announced during August 2020. At this point, they will reveal how they have performed through lockdown.
With a partial insight into Mulberry's financial position, we begin to understand they decided to reduce their workforce by a quarter. From the outside, it appears the machine of the business is driving the decisions. The financial model that most fashion businesses, including Mulberry, have adopted the classic growth model. Meaning that businesses must continually grow in the hope that they generate increased turnover and higher profits. These are the kinds of constraints that large fashion businesses, particularly publicly listed ones, have to take into consideration and ultimately end up shaping many of their decisions.
What alternative business models are there?
The degrowth model concept dates back to the 1970's and suggests we produce and consume less.
It is argued that we 'need a different kind of growth that is better for the environment, not less of it. Others argue that the philosophy of degrowth does not seriously account for technological innovation'. However the resources of our planet are not infinite and consumers have already begun to change their consumption habits, from veganism to the clothing rental business model.
The Harvard Business Review shares why “De-growth” Shouldn’t Scare Businesses and three strategies that can apply to larger incumbent firms, this includes a proposed degrowth-oriented standard-setting, which entails the creation of a standard for the rest of the industry to follow. The apparel company Patagonia — that explicitly follows an “antigrowth” strategy — is the poster child for this philosophy, offering a worn-wear store and providing free repairs for not only their own products but also for those of other brands.
The New Climate Economy Report states “We are on the cusp of a new economic era: one where growth is driven by the interaction between rapid technological innovation, sustainable infrastructure investment, and increased resource productivity. We can have growth that is strong, sustainable, balanced, and inclusive.”
In 2014, the Global Commission on the Economy and Climate concluded that ambitious climate action does not need to cost much more than business-as-usual growth.
More recently, we have been introduced to The Earth Logic Fashion Action Research Plan authored by Kate Fletcher and Mathilda Tham, who are also co-founders of Union of Concerned Researchers in Fashion. The document is a radical invitation to fashion researchers, practitioners, business leaders and decision-makers to: ‘callout as fiction the idea that sustainability can be achieved within economic growth logic; and instead to ‘stay with the trouble’ of envisioning fashion connected with nature, people and long term healthy futures.’
There seems to be an abundance of energy and ideas around how to reshape, restart or rebuild the fashion industry, yet, maybe larger businesses consider it too risky to embark on radical changes right now. However, surely a creative, innovative industry such as fashion can push a new model, a new style of business? Perhaps now is the time to seek help to transition to a new way, because it’s clear the 'old way' no longer works. Perhaps it’s time to sit back at our kitchen tables, consider what we value most and come up with a plan to ensure fashion craft skills can be kept alive through means other than being directly attributed to sales.
“I feel sure that with a little more experience we shall use the new-found bounty of nature quite differently from the way in which the rich use it today, and will map out for ourselves a plan of life quite otherwise than theirs.”
Further reading
The Antigrowth Entrepreneur: Challenging the "Equilibrium" of the Growth Machine
The Growth Machine Versus the Antigrowth Coalition
Can we have prosperity without growth?
Prosperity without Growth by Tim Jackson
Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee and Esther Duflo, winners of 2019 Nobel Prize in Economics.
Degrowth by Giorgos Kallis
Economic Possibilities for our Grandchildren by John Maynard Keynes
17.06.2020
