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Mulberry, the British luxury-goods brand, revealed a strategic U-turn on April 17, saying it planned to reinvigorate slow sales by introducing lower-priced products.
The plan is a departure from Mulberry's previous efforts move the company's leather bags upmarket, a strategic misstep that resulted in a profit warning and the departure of its chief executive earlier this year.
Mulberry cautioned that pretax profit for the year ended March 31 would be "marginally below current expectations" and warned its new pricing strategy would have a "material adverse impact on profit."
"Following the recent change in management, we are focusing on achieving sales growth through the reinforcement of our product offering at more affordable prices to meet the expectations of our loyal customers," said Interim Executive Chairman Godfrey Davis. "This will have short term financial consequences but is necessary to ensure the future strength of the Mulberry brand." Davis was recently announced as a non-exec director of UK tanning and leather goods maker, Pittards.
Former Chief Executive Bruno Guillon, who left in March, tried to nudge Mulberry upmarket by rolling out expensive new flagship stores that were meant to reduce the company's reliance on wholesale sales.
However, the strategy has not paid off, with the company facing tough competition from new handbag designers encroaching on its midrange luxury leather goods. New stores also raised the company's costs hurting profit.
On Thursday, Mulberry said the costs associated with opening new stores, the management change and a £2.7 million ($4.4 million) write down on the value of two US stores, would result in the company reporting a pretax profit of around £14 million ($23.5 million).
Source: Wall Street Journal