Luxury handbag maker Mulberry has experienced a significant drop in profits due to higher costs and sluggish UK sales, affected by economic uncertainty and the loss of VAT-free shopping

for tourists. Despite a 4% increase in group-wide revenues, pre-tax profits for the year ending April 1 fell to £13.2 million from £21.3 million in the previous year.

While retail trading improved in the latter half of the financial year, with group sales rising by 9%, UK retail sales declined slightly from £88.5 million to £87.7 million. This represents an improvement compared to the 10% drop in UK sales during the first six months. The economic uncertainty and cost crisis negatively impacted shopper confidence, particularly in the second quarter. Additionally, the absence of VAT-free shopping had a detrimental effect.

Mulberry CEO Thierry Andretta has highlighted that UK sales have been affected as affluent shoppers opt for destinations like Paris and Milan due to the tax implications. In February, the company announced the closure of its Bond Street store due to a sharp decline in customer footfall and sales following the removal of VAT-free shopping. The staff from the Bond Street store were relocated to Mulberry's other London shops.

The closure of the Bond Street store, along with a 26% increase in operating expenses, contributed to the decline in profits. Operating expenses were driven up by a 9% rise in staff costs and investments in new stores in Sweden and Australia.

Although Mulberry reported a 15% increase in retail sales for the first 12 weeks of the new financial year, UK revenues remained stagnant due to the broader economic environment. CEO Thierry Andretta emphasized the company's significant investments and expansion of its direct-to-customer model through recent acquisitions in Sweden and Australia.

Chairman Christopher Roberts, while acknowledging Mulberry's potential for success, cautioned about external factors and ongoing industry challenges, including high inflation. Retail tycoon Mike Ashley, who owns a 37% stake in Mulberry, was previously reported to be seeking a position on the handbag group's board. Photo by Raysonho @ Open Grid Scheduler / Grid Engine, Wikimedia commons.