Kate Spade is losing some of its most important customers -- and shares are tanking

Kate Spade is not invincible to the fickle nature of retail.

The company, which is known for its millennial-friendly bright colours and feminine, quirky handbags, reported dismal results.

While net sales were up 13.7% on a reported basis, shares fallen as much as 22% since the company reported earnings.

One of the things that is hurting the brand?

Lower tourist traffic, Eric Beder of Wunderlich Securities wrote in a note.

The company also admitted that this was true.

“Several factors contributed to our second quarter results falling short of our expectations, the most impactful of which are the retail landscape and continuing tourist headwinds. As we navigate these broader industry trends, we remain very confident in our long-term growth initiatives and have a number of strategies in place to drive our business in the second half of 2016. We continue to focus on the factors we can control, channel lifestyle brand,” CEO Craig A. Leavitt said in a press release.

But that’s not all.

The brand is also suffering from an epidemic that runs rampant in the industry: outlets and discounting. Beder wrote that though the company is scaling back on discounting to “continued success,” bargain hunters and those who shop at outlets have “become even more aggressive in [their] demands for price cuts, hurting the entire industry.” 

The company noted in its quarterly highlights that an “increasingly promotional landscape” remained a challenge.

But, amid the struggles, the company said in a release that it remained confident that it would become a $4 billion brand.

Beder also noted that the handbag category as a whole is currently in an unsteady state. While brands like Michael Kors and Coach are working towards revivals, last quarter, a Morgan Stanley note revealed that both Macy’s and Nordstrom saw a slowdown in the handbag category. Both department stores report quarterly earnings next week.


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