Luxury brand Mulberry was the first tangible victim of the fall of the House of Fraser, as the fashion company warned this morning that its FY profit will be “materially reduced” by the tough UK retail trading conditions. This adds additional insult to the £3m in injury inflicted on the brand by the reorganisation of the House of Fraser department stores under the new ownership of Sports Direct mogul Mike Ashley.

In effect, Mulberry was saying that not only can it quantify direct losses it will suffer now, but that these losses could be compounded further by the same troubles that have been plaguing the UK retail market: changing consumer preferences, lack of significant differentiation between major brands (Debenhams, John Lewis, etc), unyielding Brexit uncertainty and intense competition from online fashion retailers such as ASOS and Boohoo.

Exclusive luxury brands like Mulberry are having difficulties adapting to the new trading environment because they rely so heavily on the personal experience they offer to their customers. While the company does sell online, Mulberry retail strategy depends on the physical journey of shopping in upmarket retail concessions, which means that its fortunes can rise (and fall) with the likes of House of Fraser.

No investor likes to take losses, but the £3m exceptional charge to Mulberry’s finances could have been seen as a one-off. It’s the combination of the charge and the currently unquantified profit warning for the rest of the year that is really putting the hurt to the company’s share price. And until Mulberry can decouple its business model from reliance on department store concessions (or trading conditions markedly improve), its share price will maintain its downward momentum below the already miserable -58% performance it’s seen since the beginning of the year.

Artjom Hatsaturjants, Research Analyst, 20 August 2018