Hell for leather at Mulberry

One of the best-known names in handbags and designer clothes is in trouble. Nigel Cope finds out why

ITS NAME is well-known to lovers of expensive leather luggage and designer clothing - and a quintessentially English look that sells so well from Kensington to Kyoto. But now it is in trouble. Mulberry, the luxury goods group based in Somerset, revealed yesterday that its profits have been devastated by the strong pound, which has affected tourist spending in Britain and hit exports.

Mulberry is now in an extremely precarious financial position. The firm is closing a factory in Somerset, cutting 28 jobs and outsourcing more manufacturing to continental Europe. After issuing its third profits warning in less than 10 weeks it now expects to make a loss of pounds 750,000 this year while its debts stand at pounds 7m. The company's shares have slumped to an all-time low on the stock market and experts say the company may not have an independent future.

What has happened to Mulberry is symptomatic of a wider malaise among luxury goods groups, according to Clive Vaughan, of the retail consultancy Verdict Research.

"It is the same story with Harrods, Asprey and Theo Fennell (the upmarket jewellers). They had a good ride off the back of a weak pound. Now it has turned against them," he says.

The economic turmoil in the Far East, where Burberry raincoats and Mulberry handbags have been so popular, has only served to compound the difficulties. There have been profits warnings from Gucci and poor results from Burberry. Even the likes of Louis Vuitton and Bulgari have been finding the going tough.

Mulberry's decline is a bitter blow for its entrepreneurial founder, Roger Saul. Now 47, Mr Saul started Mulberry in 1971 with the pounds 500 given to him as a 21st birthday present by his parents. He made leather chokers on his kitchen table and sold them to Biba, the trendy London boutique.

Now Mulberry sells its clothing, accessories and "home" collections in 32 countries around the world. The prices are high with a small leather document case retailing at pounds 119, while a leather holdall will set you back pounds 199. Then there are the organisers, wristwatches, belts and sunglasses.

It has enabled Mr Saul to live what might be described as a "Mulberry life". He is married to Monty, a former Christian Dior model and lives in a converted Somerset farmhouse crammed full of luxuriously upholstered sofas and designer knick-knacks. He gets colouring ideas from the flowers in his walled garden. And he adds a dash of derring-do to his English countryside lifestyle by occasionally racing his 1932 Alfa Romeo 8C in the Mille Miglia, the Italian classic car race.

Mr Saul's problem now is that Mulberry is just too small to match the marketing muscle of Louis Vuitton or Gucci. It cannot cut prices for fear of damaging the "elite" status of the brand. It can only cut costs and hang on.

Retail experts say Mulberry may fall victim to a takeover, either from a rival luxury brand or a wealthy individual seeking a trophy asset. Dickson Poon, the Hong Kong-based entrepreneur who owns half of Harvey Nichols, may be interested. It is now available at a knock-down price of pounds 8m.