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Special Issue
WWD A issue 02/15/2010

Handbag makers have hit the reset button.

This story first appeared in the February 15, 2010 issue of WWD. Subscribe Today.

Slumping sales, the depletion of splurge-sized budgets sustaining multiple bag purchases and the final nail in the “It” bag coffin have forced contemporary accessories firms to reassess strategies set in motion during the handbag heyday less than two years ago. The result? Many have figured out that spanning the price spectrum and providing a variety of styles is a powerful combination that could unlock pent-up demand.

“The market has changed in the last three years,” declares Agathe Planchon, designer and president of San Diego-based Gustto. “It is not the same ball game.”

Handbag prices have decreased across the board. American accessories giant Coach paved the way last year when it began beefing up its selection of bags priced under $300. That category now constitutes as much as 50 percent of its merchandise mix. Coach also unveiled Poppy, a youthful, spirited line last year, with retail prices averaging around $240.

“We plan for the indefinite future to maintain pricing at this level,” Coach Inc. chief executive officer Lew Frankfort said at the time.

These moves by Coach and efforts by other designer accessory brands to reduce sticker shock have placed downward pricing pressure on the contemporary sector. Prices run from about $200 to $700. When consumers’ appetites for contemporary handbags seemed insatiable, prices began at $400 and bled into the designer category by edging into the $1,000 range.

“Among contemporary brands, they say the golden price is $595, but at majors, they have come down more than that,” says Laura Darrah, co-founder of Los Angeles-based Treesje. “Two years ago, it was $695 to $750. We were doing [expensive skins] and all kinds of stuff, and people didn’t flinch.”

Cynthia O’Connor, ceo of Cynthia O’Connor + Co., a sales showroom that represents Kooba, Treesje, Botkier and C.C. Skye, among others, believes contemporary brands are taking a realistic pricing approach. “Two years ago, contemporary handbags were selling at $700, and $650 to $700 was a very average price to be. That’s not our target anymore. We still have to offer some of those things-it just doesn’t give enough depth to the collection if we don’t-but we are trying to make the core lower than that.”

Dean Khial, vice president of Southern California retailer Kitson, where bags average around $395, has noticed consumers expect more from their bags. “The bottom line is that the consumer wants value for the price,” he says. “A lot of companies are making bags that are on the cusp of the trend for a much better price, and that has caused the majors to bring prices down. Most consumers felt they were overpaying before.”

Melissa Richardson Akkaway, owner of Beckley, a boutique in West Hollywood, Calif., where Rebecca Minkoff, Lauren Merkin, and Lyla Black are the bestselling handbag brands and the average handbag price is $250, concurs. “The bag really needs to be special and on trend, and not too expensive where it’s not a huge investment,” she says.

Given the comparatively stingy environment, a common tactic for contemporary handbag firms is to drop the entry-level price point. A shopper can get a small Tylie Malibu bag for $205, whereas in the past she would have to spend at least $90 more to buy the brand’s items, according to owner Lisa Izad. Even the label’s popular slouchy Nomad can be bought for $425, far less than its $600 price tag of previous years. “We have more choices in prices so we can speak to a larger audience,” says Izad.

Rather than decrease prices throughout the line, Gustto’s Planchon opted to introduce a leather tote at an opening price of $400. Monica Botkier noted that her label, Botkier, has released bags as low as $395 retail, although the sweet spot remains close to $500. Isabella Fiore, which filed for bankruptcy early in 2008 and was bought by Fab/ Starpoint in May of that year, took its prices to mainly $495 to $595 retail from $695 to $895.

The rise of smaller bags like cross-body styles has helped broaden handbag prices-and almost every brand is expanding its cross-body assortment to capitalize on the trend. “The clutch has sort of died,” says Botkier. “Instead, we have given more value to the smaller bag by creating it so you can wear it hands-free. It is slightly bigger and hangs on your hip, so it is edgy. More women are into that, even in the older demographic.”

Besides adding a slew of smaller bags, brands have incorporated non-leather materials to diversify price points. A denim bag called the Lana in Kooba’s spring collection will sell for $295 at stores. For spring, Treesje is introducing about 40 styles made from canvas, PVC and plastic, retailing from $55 for a wallet to $250 for a travel tote. “This will bring in another customer who loved the line, but couldn’t afford it,” says Sheila Nazarian, who owns Treesje with Darrah.

After a few seasons out of the handbag market, Trina Turk chose to skip leather for her return to handbags and now offers three clear vinyl bodies and five canvas bodies priced from $100 to $176 for spring. “We were trying to do something at an accessible price that our customer doesn’t have to think about too much,” says Turk. “What we learned from our first go-round with bags is that she [the Trina Turk customer] doesn’t particularly want a midpriced leather handbag. She either wants something fun and casual, or she wants a designer handbag.”

Some brands have established secondary lines to attract customers who were previously priced out. Joy Gryson launched the line Olivia Harris last spring with prices from around $155 to $575, compared with $1,000-plus for her original Gryson pieces. Gustto has a line aimed at younger consumers called Miss Gustto that’s kicking off with three groups, each with three silhouettes, retailing from $150 to $330 compared with $250 to $699 for Gustto.

On occasion, contemporary brands reach out to the mass market to supplement their business. Felix Rey, a Bloomingdale’s and Nordstrom resource, partnered with Target last March on a limited edition handbag collection. Planchon hinted Gustto is working on products for the mass market that should begin shipping this year, but wouldn’t disclose the retailer. Asked whether mass-market distribution would impinge on her contemporary clientele at boutiques and major department stores, she reasons, “It doesn’t interfere as long as you have a different product.”

The strategies initiated by contemporary handbag brands have yet to swing the handbag market into positive territory. According to the latest NPD data, handbag and luggage sales dipped 9 percent to nearly $14 billion for the year ended in October. Still, there’s a sense a turnaround is nearing.

Botkier described 2009 as a period of “readjustment” and hailed the future as bright. “I actually think we are poised for growth again soon,” she says. “I think consumer confidence will come back again after next year.”

Lynn Pincus, co-president of Kooba, also sees improvement on the horizon. “A lot of the volatility has shaken out,” she says. “Obviously, [consumers] aren’t where we would like them to be yet, but…we are definitely seeing some progress.”

O’Connor adds, “Business is getting back. I have gotten so many reorders this month, it feels like old times.”