Michael Kors has been in a tough position.
Its brand image has been challenged, largely in part due to its overexposure, the proliferation of its outlet stores, and department stores, the latter of which left promotions out of the hands of brands, often letting prestigious brands get turned into ‘sale’ brands.
Following the announcement that its wholesale net sales dipped 7.2% in the first quarter of fiscal 2017, Michael Kors’ CEO John D. Idol announced that the brand would be backing out of department store couponing and friends and family discounts.
“We think that this is critical for us to really do three things; number one, to protect our brand image,” he said on an earnings call. “As you know, that channel has become very promotional and, in fact, is causing us difficulties in our own retail channel, which is why you see our gross margins declining because we’re really trying to meet certain pricing that’s happening to be competitive. And we don’t think that’s the right thing to do for our brand going forward.”
“Secondarily, we think 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.”
“And third, mathematically, if you look at what’s happened to our business, as I’ve stated in the call, we’re shipping double digits in terms of increases in product, but we’re reporting revenue declines, and that’s predominantly driven by average order declining, and that’s predominantly being driven by lower prices because of promotional activity.”
Coach announced that it would be pulling out of 25% of its wholesale locations, too, also as a means to preserve its positioning.
Last quarter, a Morgan Stanley report revealed that both Macy’s and Nordstrom saw a “deceleration in the handbag category.”
Macy’s and Nordstrom both announce their quarterly earnings on August 11.
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