Commentary

Luxury Brands Say Enough Is Enough; Cut Back On Deals, Distribution

Who needs a pricey handbag if just about anybody can afford it? That’s the message this week from two high-end brands — Michael Kors and Coach — who have announced plans to take back control of the retail prices of their accessories by limiting distribution and not participating in sales for the hoi polloi. And Ralph Lauren, whose #TeamUSA uniforms incited controversy at the Olympic Games last week, couldn’t agree more.

Michael Kors CEO John Idol yesterday told analysts that it “will no longer participate in department stores' broad-based friends and family sales, or accept coupons for its products there,” starting in February, reports CNBC’s Krystina Gustafson. And it “will also move forward with its strategy to cut back on the amount of merchandise it ships to these retailers, as it looks to rebuild the pricing power it's lost with shoppers.”

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“It's creating confusion in the consumers' mind relative to the value of the Michael Kors brand when it's being seen so often on sale in so many different places,” Idol said. “We have to correct something that we think is actually having a negative long-term effect for the brand.”

Kors revealed revenue in the Americas slid 5% in the first quarter,” according to Reuters’ Jessica Kuruthukulangara and Subrat Patnaik. “The region accounted for more than two-thirds of total revenue. Sales at stores open more than a year slumped 7.4%, a drop bigger than the 4.7% analysts on average had expected, according to research firm Consensus Metrix.”

Meanwhile, Ralph Lauren CEO Stefan Larsson “also noted the heavy promotions at department stores but said he is working with retailers to improve the quality and design of products and will streamline the number of styles in an effort to sell more items at full price,” Suzanne Kapner reports for the Wall Street Journal.

“We, like everyone else, are facing difficult retail traffic trends in a highly promotional environment,” Larsson said, after the company reported “net revenue declined 4% to $1.55 billion, driven by an 11% drop in North America.”

While revealing Tuesday that its fourth-quarter sales gained 15% and that its turnaround plan is taking hold, as Marketing Daily’s Sarah Mahoney reports, Coach CEO Victor Luis also said that it was pulling back from department stores.

“While he liked that those kinds of retail locations offer the opportunity for people to try the Coach brand for the first time, he felt their promotional strategies were ‘generating confusion’ relative to what Coach is trying to do in its own stores,” writes Sarah Halzack for the Washington Post.

It all adds up to more bad news for traditional retailers who are doing whatever they can to hold on against the growth of online sales.

“These defections come as department stores — and malls in general — are seeing their importance plummet among American consumers. Macy’s, Nordstrom, Sears and Kohl’s have all reported disappointing first quarter earnings,” points out Shan Li for the Los Angeles Times.

Department stores are “hanging on the edge of a cliff with three fingernails holding them up,” America’s Research Group founder Britt Beemer tells her. “Beemer said shoppers who prefer physical stores are gravitating toward more specialty retailers or malls that offer experiences such as outdoor entertainment and dining. As department stores and many shopping centers have cut back on customer service, consumers have become disenchanted with these destinations in general.”

But the luxury brands have their own retail ambitions to blame as well. 

“Kors has been adding specialty stores at a breakneck pace, bringing its fleet to 771 locations across the world, compared with 550 last year. How elite can a chain really feel when it is a fixture in hundreds of suburban shopping malls?,” writes the WaPo’s Halzack. “And Coach has notoriously suffered from leaning too heavily on its outlet stores for growth, a move that hurt the brand with prestige-minded customers.”

Whether less turns out to be more, however, remains to be seen.

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