3 Reasons Michael Kors Shares Are Crashing

The Michael Kors brand might be past its prime.

Shares are down as much as 8% today on concerns that the company’s growth is slowing. Despite a same-store-sales increase of 16%, many analysts are worried that the business is unsustainable

The fashion label, which enjoyed a stunning rise in popularity in recent years, is facing new challenges.

Forbes notes that Michael Kors is no longer a billionaire because shares have declined in recent months.

Here are a few big problems with the brand.

1. Everyone is wearing Michael Kors.

Widespread popularity is the “kiss of death for trendy fashion brands, particularly those positioned in the up-market younger consumer sectors,” industry expert Robin Lewis writes on his blog. Lewis compares Michael Kors to Tommy Hilfiger, which reached its peak in the late ’90s.

Michael Kors is considered an aspirational brand, with consumers paying a premium for its label. Once everyone has the product, it is no longer considered cool.

Other brands who have experienced this phenomenon include Juicy Couture, Jordache, and Coach.

Baird chart Michael KorsBaird Equity ResearchGoogle searches for the brand are declining in the US.

2. Inventories are piling up.

Michael Kors is entering the current quarter with a 65% inventory increase, writes retail equity analyst Marie Driscoll.

While the company says that the excess inventory is because of the company taking the e-commerce business in-house, Driscoll is sceptical that it will sell.

“That’s a lot of inventory in an increasingly competitive category,” she writes. “I’m worried.”

She also compares Michael Kors to the Tommy Hilfiger collapse more than a decade ago.

“While the brand continues to enjoy vibrant demand, these investors are on to greener pastures,” she says. “It’s probably time to sell KORS shares!”

Michael kors shares chartYahoo! FinanceShares are down 25% in six months.

3. The strategy could backfire.

Michael Kors has also has several brands at different price points, a strategy that could easily backfire, Lewis says. Kors has a high-end department store brand, a middle-market brand, and discount outlet stores.

“Some would argue all of those segments will simply end up competing with each other, thus cannibalising the top end of the spectrum,” he writes.

In other words, consumers won’t pay $US300 for a department store Michael Kors bag when they can get one at the outlet mall for half-price.

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