Mulberry and Burberry hit by luxury slowdown as rich tourists stay away

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The state of the luxury market was laid bare after Mulberry issued its third profit warning this year and larger rival Burberry warned the outlook for the sector was getting tougher, prompting both stocks to tumble in London trading.

The luxury sector has been hit by a reduction in tourists from China, the Middle East and Russia due to political instability while the strong pound has also deterred overseas shoppers in London.

British handbags maker Mulberry, which is trying to reposition itself after a disastrous move upmarket, today said retail sales in this country slumped 12 per cent in the six months to the end of September while overall sales dropped 17 per cent to £64.7 million.

In response, its house broker Barclays slashed its 2015 pre-tax profit forecast by a huge 60 per cent to £4 million and the shares fell more than 20 per cent to 600p.

Mulberry, whose chief executive Bruno Guillon left in March after being blamed for an ill-fated decision to concentrate just on expensive handbags, has issued five profit warnings in two years and the shares have lost 75 per cent since trading at close to 2500p in May 2012.

Godfrey Davis, the former boss who stepped in as executive chairman, has introduced cheaper bags and said the initial reaction to its recently released Tessie and model Cara Delevingne-designed ranges were “positive”, helping sales trends improve.

“I am now confident that we have put in place the necessary changes to restore growth in the medium term,” he added. Davis also hinted he was making progress with the search for a new creative director after Emma Hill quit last year.

Burberry said underlying sales for the six months to the end of September had jumped 14 per cent to £1.1 billion, with retail sales up 15 per cent to £748 million and like-for-like sales growth of 10 per cent. Wholesale sales rose 13 per cent to £317 million.

It also said it had enjoyed strong demand for its latest fragrance MyBurberry, modelled by Delevingne and Kate Moss.

However, the FTSE 100 giant’s chief executive Christopher Bailey warned he was “mindful of the more difficult external environment” and the shares dropped more than 5 per cent to 1402p.

Last month Italian giant Prada revealed a 20 per cent fall in profit as the market for luxury goods worsens.

Mulberry’s wholesale arm saw sales slump 31 per cent due to the fact shops across Asia and Europe are buying less of its new product while they shift the older, more-expensive stock.

Burberry’s house broker Bank of America Merrill Lynch said: “In our view the market should reward Burberry for the continuation of its double-digit revenue growth in the first half, given the tough operating environment and bearish sentiment.”