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Is Michael Kors becoming lacklustre?


Michael Kors’ eponymous fashion line yesterday trimmed its earnings outlook for the current quarter, after seeing slower sales during the year-end holidays. Shares fell as much as 6% on Thursday.

The luxury accessories retailer saw a slowdown particularly prominent in North America, where Chief Executive John Idol admitted the brand had pushed promotions, more so than other luxury labels such as Kate Spade and Coach. Under the leadership of Idol, Michael Kors has seen rapid expansion in recent years, but analysts fear that the brand may be overselling itself.

The company attributed a shift in consumer shopping habits for the decrease in North American sales, with shoppers “migrating their purchases” to online “at a greater rate than initially anticipated” Idol said.

Michael Kors said North America same-store sales would have been 380 basis points higher, if the 73% growth in e-commerce sales had been included. The company, which generates around 16% of revenue from outside North America, also said a stronger dollar impacted on forecast.

Michael Kors has been known to surpass estimates by generous margins and the holiday quarter was no different as revenue rose by 30% and third quarter profit jumped by 32%, but investors are focusing on the softer forecast, a weaker demand in those North American sales in the quarter (October – December) and the first ever drop in quarterly margins.

Michael Kors has enjoyed rising popularity, as watches and handbags become known as affordably luxury. Now the ubiquitousness of the American is not doing the brand any favours, as the aggressive opening of new stores, and growing distribution of products through added department stores, is beginning to oversell the brand.

“It’s overexposed now,” comments Paul Thomas, Retail Consultant at Retail Remedy and former Harrods Sales Director. “Not only has it increased its footprint in a number of department stores but it’s spread itself around the world. Also, there are a lot of counterfeit products, an issue that all luxury brands face, but a problem Michael Kors experiences in particular, for example in Turkey. Michael Kors is keen to be seen as a high end brand and wants to be positioned as high-end luxury, perhaps it is in terms of ready-to-wear, but from an accessory point of view, it’s not quite there.”

Published on Friday 06 February by Veebs Sabharwal

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