A lack of new handbag styles hurts sales of Michael Kors
Michael Kors, which said quarterly net income fell to USD 174 million, plans to introduce a big assortment of new handbag and watch styles in the coming spring
Michael Kors CEO says he knows what is behind the slowdown in handbag sales: not enough new styles.
The handbag and accessories maker said on August 6, 2015 that its profit fell 7%, and sales at existing Michael Kors retail stores fell 9.5% in the three months to June 27.
Kors is battling a slowdown in handbag and watch sales, magnified by anaemic shopper traffic across the U.S. The company is also being buffeted by the strong dollar, which makes its products more expensive abroad and dampens the tourist flow into the U.S., a key source of customers for the company.
Handbags have been one of the hottest categories for retailers in recent years, as new styles and materials prompted women to buy multiple bags a year to match different outfits and occasions. But the industry has failed to come up with new styles to capture shopper attention.
Quarterly net income fell to USD 174 million from USD 188 million a year earlier. Still, the results topped Wall Street’s expectations and the stock rose 11% to USD 43.77 in 4 p.m. composite trading. The shares have lost 41 % so far this year.
Michael Kors plans to introduce a big assortment of new handbag and watch styles in the coming spring. Chief Executive John Idol said the products would be the most extensive new material the company has introduced to date.
“We’re going to take a very aggressive point of view on newness for the spring season in particular,” Idol said.
Winning back shoppers may be hard. During the heyday of handbags, women’s spending on apparel dropped, but now there are signs the balance could be shifting.
“Women are buying apparel again,” said Marshal Cohen, chief industry analyst for The NPD Group, a consumer-tracking service. “When they weren’t buying apparel, they were buying bags. Now they’re trading one over the other.”
U.S. sales of women’s apparel grew 3 % to USD 119.1 billion in the 12 months that ended in June. By contrast, U.S. sales of women’s handbags grew slightly less, posting a 2 % increase to USD eight billion, according to NPD Group.
Victor Luis, the CEO of rival Coach Inc., told analysts on August 4, 2015 that “consumers are waiting for more innovation.” Coach reported slumping sales and profit earlier this week.
For Michael Kors, the sales slowdown was most pronounced in North America where total revenue grew 1.2 % to USD 727 million. That compares with European revenue, which grew 16.9 %, and Japan, where revenue increased 32.7 %. The sales increases would have been higher if currency moves had been excluded.
Total retail sales increased 9 % to USD 523 million, driven by 107 new-store openings. Total revenue, which includes sales of Kors products sold in department stores, rose 7.3% to USD 986 million. Excluding currency moves, revenue would have increased 13.4 %.
Unlike its peers, Michael Kors has tried to stay away from heavy discounting to spur sales. Even so, its gross margin fell to 61.2% from 62.2% a year earlier because of currency shifts.
Analysts have worried that the company is at risk of oversaturating the market by expanding rapidly.
As of the end of the quarter, it had 550 retail stores world-wide and sold its products in thousands of department-store locations. Idol said the brand remains strong and the real problem is a lack of new products.
The company plans to introduce smaller handbags as well as more backpacks and bags with a strap that can be slung across the body. In watches, there will be new types of metals and finishes and well as more watches with leather bands. The company plans to introduce its first watch with “wearable” technology in the fall. Idol said the sell through rate for new products currently in stores is the best it has been in three years. There is one downside, however. The smaller bags tend to cost less, which depresses the amount customers spend. He added that he was aware of the slowdown that has befallen American department stores, and plans to reduce the amount of merchandise in that channel to avoid having goods heavily marked down. In the recently completed quarter, wholesale sales grew 4.2% to USD 424 million.