Mulberry lost almost a third of its market value after the maker of luxury handbags, regularly seen hanging from the arms of fashion elite including Kate Moss and Victoria Beckham, admitted it had been forced into substantial discounting over the Christmas period.

The luxury British label, best known for its Alexa satchel, named after the model Alexa Chung, has been struggling since the departure of its highly regarded creative director Emma Hill who quit last summer, and has yet to find a replacement.

Bruno Guillon, Mulberry's chief executive, who joined the label in 2012 from Hermes, has been criticised for pushing up prices in a bid to make Mulberry more upmarket. The label has abandoned customers prepared to pay £150-£500 in a bid to become a full-scale designer brand.

The Alexa satchel starts at £800 but can cost up to £1,250, while its Willow calf-skin bags were on sale at Harrods for £1,600.

The admission of poor trading over Christmas was the company's third profit warning in the space of 18 months and caused its shares to plunge by 27%.

The latest alarm underscores the scale of the task for Mulberry as it attempts to transform itself from a mid-market bag maker into a global fashion powerhouse. The company said in December its pretax profits for the previous six months had fallen 28%. Guillon defended his strategy, saying the company was generating cash and investing "in the ongoing process of transforming Mulberry from a domestic to a global luxury brand, the progress of which is demonstrated by the continued growth in international retail sales".

Mulberry makes more than 60% of its sales in the UK, but is bent on overseas expansion, hoping to tempt high-spending shoppers in Asia. By the end of March it will have opened 15 new overseas stores in markets such as the United States and China, and including its lead store on Rue Saint-Honoré in Paris, a shopping destination for wealthy Chinese tourists.

Mulberry said sales in Britain were down 3% and although international sales were up sharply, by 40%, it warned of a cancellation of a large order from Korea.

Maureen Hinton, a retail analyst at City firm Conlumino, said Mulberry did not have enough of an "aspirational" product to justify its high prices. "There is such strong competition out there and if you are going to spend £1,000-plus on a bag then there are other brands that are currently more iconic or fashionable," she said.

Disputes over Guillon's strategy were rumoured to be behind the departure of Hill last summer. The designer from Wales was credited with transforming Mulberry from a tired label best known for its Filofax cases, into a brand favoured by Chung, singer Lana Del Rey and other celebrities including Eliza Doolittle and Pixie Geldof, who would regularly be seen on the front row of its London fashion shows.

Hinton said finding a creative director was vital for Mulberry to establish "clear brand definition" to justify its prices. "Mulberry is at a difficult, transitional stage. It has lost the appeal it had a few seasons back in its home market and has yet to establish itself as a global luxury player."

"Currently the costs of turning it into a recognised global brand – new international stores, fashion shows, a new factory, marketing – are not being supported by sales."

After it warned of profits "substantially below current market expectations", the fashion house said it had pencilled in full-year profits of £19m, against a previous estimate of £26m.

Retail analyst Nick Bubb, who noted that Mulberry's share price had dropped 70% since Guillon's arrival, said: "The transition of Mulberry 'from a UK success story into a global brand' does not appear to be going well."

Mulberry's travails look even starker when compared to rival Burberry, which reported a 15% sales boost over Christmas.

"British luxury brands have a problem," said Lorna Hall, from the fashion forecaster WGSN. "And that problem is Burberry, because everyone compares them against it … [and] it is not possible for everyone to be that brand at that size."

But she said Mulberry had an opportunity as big brands, such as French luxury conglomerate LVMH, scale back their retail presence to avoid become too ubiquitous. "There is an opportunity for a brand such as Mulberry to be less obvious and a more interesting choice."

But becoming a global luxury brand was a tough, she cautioned. "It takes time, luck, opportunity, but also a lot of money."