Consumer Discretionary

Mulberry turnaround falters as luxury brands diverge


Any immediate turnaround in fortunes for the U.K. luxury brand Mulberry has failed to materialize, with the company announcing weak sales for the first ten weeks of its trading year on Thursday. Analysts have told CNBC that Mulberry's woes are reminiscent of the wider luxury goods market which has seen a split in recent years.

Back in April, Mulberry buoyed investors with plans to release a more "affordable" range of products to add to its luxury handbags. The Tessie collection - retailing at around £600 - was seen as a chance for the company to capture the middle ground that it had previously deserted, helping traders to shrug off a profit warning issued along with the announcement.

The new range which was launched two weeks ago is "proving popular," according to Thursday's press release which accompanied the full-year results, but the Somerset company hasn't managed to derail a trend of falling sales. Like-for like sales for the ten weeks to June 7 were 15 percent below those for the same period last year, it said. Investors responded by dumping Mulberry shares on Thursday morning - with the stock falling 4 percent at the open.

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"The outlook for the current financial year remains challenging. Although there are encouraging signs in our own full price retail business, including the well-received launch of the new Tessie collection, we expect the improvement in sales will be progressive," the company said.

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"Notwithstanding the short-term pressures, we are confident that we can build on Mulberry's solid foundations and unique brand positioning in the luxury market to restore growth in the medium term."

Investors remain unconvinced and it appears that analysts are too. Rahul Sharma, founder and managing director of investment group Neev Capital has spoken to CNBC before regarding a split in the luxury market between high-end leather goods retailers like Hermes, Dior and Chanel and Tory Burch and Michael Kors at the bottom end. Those caught in any dangerous middle ground could lose out and might see revenues slip.

Read MoreMulberry woes continue as it looks to cheaper prices

Mulberry's decision to target the upper bracket and then reel back with this new mid-range product was not a strategy that he had seen before. He added that many of the luxury brands like Mulberry tried to find success in the high-end by raising prices sharply without having real brand equity to back it up.

"Mulberry had no choice," he said, regarding the decision for the new affordable handbags. "(It) lost its core shopper, the upper middle class U.K. housewife, by pricing too high and lacks appeal to the real high end."

"I think even those on high end have lost some of this sweet spot (up to the £1,000 price point) and that is partly why Gucci and even Prada are struggling. Others I would question are Versace and D&G as well."

Despite "alienating" core shoppers, Bryan Roberts, a retail insights director for Kantar Retail, remains upbeat on the company. He told CNBC that the repositioning as an affordable luxury brand should "yield benefits" in the longer term.