Mulberry has finally realised its handbags are too expensive

When you issue your second profit warning in three months, soon after your chief exec resigns, something has got to give.

by Rachel Savage
Last Updated: 14 Oct 2014

Mulberry handbags used to be the Christmas gift du jour for young, fashionable women. In the early noughties ‘it-bags’ were expensive, at between £300-£600, but not out of reach for the middle class. However, chief exec Bruno Guillon decided to move the brand uber-upmarket when he joined two years ago by hiking up prices (its Alexa satchel currently costs at least £1,100).

Guillon’s resignation last month proves that didn’t go so well, particularly given the 66% fall in share price he oversaw. Undermining the brand's British heritage by moving a big chunk of manufacturing from its Somerset base to China probably wasn't the brightest idea either. It didn't help that the price of leather has risen massively over the past few years. Now, the company has finally faced up to the poor choice of strategy (probably helped by the chief exec’s departure) and said it will introduce ‘affordable’ new products (for more of us anyway).

It admitted cutting prices would have a ‘material adverse impact on profit whilst brand momentum rebuilds’. However, the announcement came alongside with the second profit warning in three months, so the company had to prove it hasn’t completely lost the plot.

Mulberry said its pre-tax profit for the year to the end of March would be ‘marginally below expectations’ at around £14m – a very liberal margin indeed, given City analysts had forecasted £19m. As the new cheaper bags will hit its profits further, the company will be hoping investors don't give it a handbagging.

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