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COULD MULBERRY BECOME THE NEXT COACH?

By Curt Hazlett

There is no shortage of pricey leather goods available to U.S. shoppers. The field is already crowded, but it still holds plenty of appeal for lesser-known brands hoping to cash in on their overseas cachet. The latest example is Mulberry, a British leather-goods chain that opened two Manhattan stores over the past year, followed by stores on West Hollywood’s Melrose Place and at Americana Manhasset on New York’s Long Island. A fifth will open this spring, at the Pier Shops at Caesars, in Atlantic City, N.J., and the company says it is open to further expansion.

This is a big leap for a retailer that only a few years ago was battered by losses. Indeed, Mulberry Group, with headquarters in the ancient Somerset town of Shepton Mallet, struggled through a nasty ownership fight between its founder and a husband and wife team of Singaporean investors before reasserting itself as an arbiter of English style.

These days the chain is riding high, with 30 stores around the world. Sales for the first half of fiscal 2006 rose 8 percent to $41 million, and pretax profits totaled $4.4 million, a figure that was reduced by the cost of opening the U.S. stores.

Mulberry bags are colorful and supple, with a luxurious but casual look. They are not for the thrifty — prices run from about $1,000 to $1,500. That certainly has not hurt their appeal, though, which has been boosted by the bags’ appearing on the arms of such celebrities as Kate Moss and Scarlett Johansson.

Until a few years ago, Mulberry could not even be found in U.S. stores. In 2004 Mulberry began selling merchandise in Bergdorf Goodman, then Barneys New York, Neiman Marcus, Nordstrom and Saks Fifth Avenue. Soon the company decided to take the plunge with its own stores, a move it had long planned, but which the financial troubles had hindered. “We felt it was important for the consumer to see the goods in their own retail environment,” said Sarah Geary, the U.S. operation’s head of marketing and public relations. “We’re aware it’s a crowded landscape out there, but we feel Mulberry is a global brand that can be synonymous with luxury high-end shopping.” Mulberry still sells its goods in department stores as well.

The first Manhattan store, at under 1,000 square feet, opened at 387 Bleecker Street last August. Located on the ground floor of a small town house, the space evokes English clubbiness. A few months later the company opened a second store, three times bigger than the first, at 605 Madison Avenue, featuring both leather goods and men’s and women’s ready-to-wear clothing. In short order came the stores on Melrose Place and in Manhasset. “All four locations are different, and the fifth will be too,” said Geary. “The interiors conform to a particular design which we feel shows off the bags, and Mulberry is all about tactility and touch.”

Mulberry’s move reflects the robust nature of the luxury market in the U.S., said Pamela N. Danziger, president of the Unity Marketing consulting firm in Stevens, Pa., and author of several books on consumer trends. “The U.S. luxury market is without a doubt the biggest and most vibrant in the world, despite all the press about China and India,” Danziger said. “It’s the U.S. market where all the real money is and where the real money is being made by large luxury retailers. It’s where you want to be to make a splash.”

Danziger says she believes that Mulberry’s decision to offer merchandise in its own stores is part of an effort to build brand awareness along with sales. “What stores do for companies is that they give customers a way to personally interact and connect with the brand,” she said. “Advertising gives you exposure, but you don’t get the physical connection that you get by walking into the store.” The model for the move may well be Coach, which Danziger says has “been incredibly successful with its captive retail stores. Coach recognizes how important it is to tell your own story. I don’t care how successful the department stores are, they can never tell your own brand story.”

Mulberry’s story is in fact a colorful tale marked by fast growth, big setbacks and a strong recovery. Roger Saul, who used money he received for his 21st birthday to start making leather goods in his garage, founded it in 1971. Saul was ambitious and energetic. By the 1990s Mulberry was producing not only leather accessories but home goods and clothing, and it began expanding with stores in Manchester, London and elsewhere. It even opened a hotel in Shepton Mallet, a town of about 8,500, to display its home designs. A big part of its expansion was in Asia, and that proved troublesome after the Asian financial crisis of the 1990s hit; the company, now publicly held, began posting losses.

By 2000 the financial difficulties were dire enough that Saul sold a 42 percent stake to Challice, a company run by the Singaporean couple, Ong Beng Seng and his wife, Christina. With fresh capital and new designs, Mulberry became profitable again. But when the red ink returned in 2002, a public dispute between Saul and Challice (by then Challice owned 51 percent) resulted in the founder’s being pushed out of the chairman’s post, though he remained president. A year later he sold his remaining shares and left the company.

Now firmly in control, Challice decided to emphasize accessories, close unprofitable stores and expand overseas distribution. The company opened stores in London’s Heathrow Airport, as well as Edinburgh, Scotland; Oslo, Norway; and Bangkok, Thailand; and struck the wholesale deals that brought Mulberry to the U.S. Mulberry clearly has big plans for the American operation. Lisa Montague, its CEO, told Women’s Wear Daily last year that the company hopes the U.S. market will someday account for a third of the company’s business.

Where might Mulberry go next? “There is no deciding set of factors,” said Geary. “While we wouldn’t say no to anything right off the bat, it would really have to work for us. It might be somewhere that wouldn’t be too much of a leap for us, like Greenwich Avenue, in Greenwich, Conn., or someplace like that. But it doesn’t necessarily need to be in a mall or a High Street.”