British luxury brand Mulberry is to launch an "affordable" bag in a bid to turn around its misfortunes and boost growth.
The company, whose Bayswater and Lily bags have £5,000-plus price tags, warned Thursday the cheaper range will have an impact on its profits while it tries to bring the business back to its original roots.
Profit before tax for the year ended march 31 is expected to be around £14 million ($23.6 million) compared to £26 million last year, Mulberry said – the second profit warning in a row for the group. Nonetheless, investors welcomed the new strategy as shares traded up 1.1 percent. Mulberry shares are down 27 percent year to date, however.
"The primary objective is to reinvigorate sales by the introduction of more affordable new product," Mulberry said in a trading update.
"As a consequence of these factors, in particular the pricing strategy, there will be a material adverse impact on profit whilst brand momentum rebuilds."
The move, which is rarely seen in a luxury brand, comes amid turmoil for the company after chief executive Bruno Guillon stepped down in March. Guillon looked to take Mulberry away from its roots by hiking prices to make it an ultra-premium designer. But this has led to falling profits for the company.
"We've come full circle because this was the problem at Mulberry, you had a CEO who came in from Hermes and tried to take this brand high up the spectrum. He forgot that this company used to sell largely to a U.K. audience which is an upper middle class audience," Rahul Sharma, founder of Neev Capital, the analysis firm.
"If you make the brand unaffordable to the core consumer then you lose those consumers."
Analysts said that the new affordable product announced by Mulberry will most likely be a handbag. Godfrey Davis, the interim CEO and non-executive chairman, is leading the charge while Mulberry searches for a new CEO to take the helm.
Mulberry also said that store openings will slow to five for 2014-15 from eight in 2013-14.
The new direction will not yield immediate benefits for the company but is a good long-term strategy, said Anusha Couttigane, fashion consultant at Conlumino.
"I think it's going to take a while to reclaim some of the custom they lost," Couttigane told CNBC in a phone interview.
"But in the long term they will raise profits and it puts them in a competitive position."