The ongoing decline of that hallowed American institution — the shopping mall — isn’t helping Michael Kors but it has other problems, too, if yesterday’s results are indicative of anything besides a 2.4% decline in total revenue for the holiday quarter, to $3.43 billion.
“Michael Kors is being hit particularly hard by the woes that have convulsed U.S. department store and mall operators,” reports Pan Kwan Yuk for Financial Times. “While its retail business, where it sells its goods through its own stores, notched up a 9.2% increase in sales during the December quarter, its wholesale business, where it sells to department stores, suffered a 17.8% drop in sales during the period.”
Were that the only challenge.
“The company's weak results weren't limited to softness in these third-party stores, which have borne the brunt of management's blame over the past several quarters,” observesCNBC.com’s Krystina Gustafson. “Instead, comparable sales at Kors' branded retail stores also deteriorated, as fewer shoppers visited these locations. Meanwhile, deep promotions and a preference for lower-priced small handbags weighed on the company's margins, even as management pulled back on discounts in department stores.”
The decline has been several years in the making.
“Kors, once the hottest name in the ‘affordable luxury’ sector, posted double-digit sales growth until 2014, helped by the runaway success of its $300 bags,” Reuters’ Sruthi Ramakrishnan reminds us. It also sells apparel, watches and shoes and is expanding into dresses and menswear, she reports.
You may recall that Kors CEO John Idol announced plans last August to take back control of the retail prices of its handbags and accessories by limiting distribution and not participating in sales. The Wall Street Journal’s Suzanne Kapner plays up the angle that the fashion company also intends to improve the quality of is high-end goods as a remedy for the rampant price-slicing.
During its earnings call yesterday, which has been transcribed by Seeking Alphahere, “Idol said the company is also trying to hold the line on discounts at its own retail stores by incorporating more craftsmanship, special hardware and better-quality leather into its merchandise. As an example, he pointed to the Mercer collection of rectangular and domed handbags priced around $300 that weren’t discounted, yet sold well all season,” Kapner writes.
Idol also said he was pleased with consumers’ “response to smartwatches and Wonderlust fragrance, but that he was disappointed with the comparable-store sales performance in Europe and North America,” Stephanie Hoi-Nga Wong reports for Bloomberg, and he’s “‘very concerned’ that the upcoming elections in Germany and France may hurt consumer sentiment.”
But that doesn't mean it doesn't have a roving eye for a good deal.
“Idol has said the company is looking for acquisitions, though the first priority for its capital is to buy back shares,” Wong writes.
“We are actively looking at a number of different things,” Idol said. “We certainly have the capacity to do sizable transactions or smaller transactions.”
The Associated Press recounts “it has been a rough start to the year for the luxury sector. Tiffany & Co. announced the departure of its CEO on Sunday after a dreary holiday season. Ralph Lauren Corp. and CEO Stefan Larsson, who took over top job less than two years ago in hopes of revitalizing the iconic brand, mutually agreed to part ways last week.”
Kors also lowered its outlook for the rest of 2017 yesterday. Are its results and expectations the harbinger of a widespread problem in retail?
“Analysts and financial pundits immediately want to make it a commentary about the entire sector,” warns Parke Shell in an analysis on Seeking Alpha. Retail has its issues, for sure, but “we don't think brick-and-mortar retail is simply going to go away completely and we don't think that online retail is going to simply take over completely,” Shell writes.
Indeed, Kors’ “saturation also may mean that it is simply starting to see disinterested consumers and that the brand itself could be struggling on its own regardless of which type of retail store it is being sold in. Kors is well past its explosive growth phase and has now become somewhat of a household name,” Shell continues. “When that happens, the exclusivity of a brand starts to dip and it becomes a little less desirable and a little more common.”
And what could be worse than that when you’re peddling cachet?