Michael Kors Banks on Higher Quality Handbags to End Sales Funk
Once one of the trendiest stocks around, fashion house Michael Kors (KORS) has been slipping on the runway of late.
Reeling from years of over-expansion in the once-hot handbag market and too much focus on promotions, Michael Kors (KORS) reported another quarter of poor numbers on Tuesday, included a 6.4% drop in sales at the company’s retail stores open at least 12 months in its third fiscal quarter, stripping out currency fluctuations. Sales at department stores fell 18%, the result of a previously announced plan to pull back on promotion heavy stores like Macy’s (M).
Kors’ shares fell 11% to hit a new 52-week low.
For years, Kors had been exploding in popularity, boosted by an insatiable appetite for handbags that prompted it to open stores quickly. In its bid to grow quickly, Kors focused more on the low end than any upscale aspirant should. And the result has been a hit to its fashion cred and willingness of shoppers to pay full price, a predisposition that won’t come back so easily.
So to remedy that, Kors will ramp up the craftsmanship and offer higher quality leather as it looks to convince shoppers to pay up for its wares. The strategy echoes that of Coach (COH), which after two years of sharp declines has been on the upswing for three straight quarters. Coach said last week that handbags $400 and up accounted for half of sales last quarter, up from 30% a year earlier.
And like Coach—and to some degree fashion chains like Gap Inc (GPS) and Abercrombie & Fitch (ANF)—Kors is looking to repair its image with higher quality products.
“There unique and innovative techniques, including artisanal craftsmanship, iconic hardware details and intricate mixed-media leather will enhancer glamorous handbag offerings,” Michael Kors CEO John Idol said during a call with Wall Street analysts.
Kors has also been buffeted from the trend away from large handbags to smaller, cross-body versions, which tend to be less expensive.
Sales in the Americas decreased 7.4%, while European sales fell 7%. Sales in Asia surged 89% because of the previously licensed operations in the region that it has acquired. Total company revenue decreased 3.2% to $1.35 billion, while its net income of $271.3 million fell from $294.6 million a year earlier.