The contemporary handbag market has had a bummer of a summer.
With 2015 now in its second half, major handbag players are citing an increased downturn in sales, particularly within the contemporary arena. The softening of the market was never more apparent than with the most recent financial results from three major U.S. players — Coach, Michael Kors and Kate Spade New York — reported this month. On Aug. 6, Michael Kors said for the first quarter ended June 27, net income fell 7.1 percent to $174.4 million, or 87 cents a diluted share, on a 7.3 percent gain in revenues to $986 million. A day prior, Coach reported that for the quarter ended June 27, profits declined by 84.4 percent, following an 11.6 percent decrease in sales. Kate Spade fared slightly better, with second-quarter results swinging a profit — a net income at $8.5 million, or 7 cents a diluted share, versus the year-ago net loss of $4.4 million, or 3 cents.
With all three brands making reference to their handbag offerings in interviews with WWD immediately following the earnings reports, market analysts are noting the correlation, blaming lack of novelty — and with it, a reason to buy — within the contemporary handbag market.
“I’ve talked to a number of our clients who are major players in accessories and supply to all the major department stores, and the general impression is that while the first half of this year was OK, the momentum doesn’t really seem to be carrying into the second half,” said Howard Feller, a partner at MMG Advisors, an investment bank that specializes in retail, jewelry and fashion-related M&A. “There really is no major trend going on right now of a must-have accessory. I don’t think there is anything compelling for the consumer to buy. That has to factor into why business overall is soft.
“The overall issue is that in such a promotional environment, price points are such that retailers are certainly not lowering their own margin expectations in terms of what needs to come out on their floor. The pricing and margin pressure that the vendor community is facing — branding entities — there is less room to put out compelling product. They have to control costs so aggressively in order to make a profit that it just ends up being very mediocre product. That’s been a trend now for a while, and I don’t see any obvious catalyst to change it.” Robin Lewis, an independent retail constant and coauthor of “The New Rules of Retail — Competing in the World’s Toughest Marketplace,” agreed.
“The accessories business in general was sizzling for a while, particularly in handbags, and these three brands in particular were racing to win that share in a hot market and win those consumers,” he said. “That led to pricing wars because they simply overstuffed the market, and to compete with each other, they had to resort to price-cutting. In doing so, they did two things: they became ubiquitous — and ubiquity is death for fashionable brands, particularly among young people — and then, two, they devalued the brand in the eyes of the consumer.”
A shift toward the Millennial consumer, who, according to Lewis, values individuality above all, might also be a factor. According to The NPD Group’s Growth Accessory Tracker, the accessories category grew 3.1 percent year-over-year in the 12 months ended May 31, up just over 1 percent from growth just shy of 2 percent in the year prior. According to NPD, that 3.1 percent growth was driven by Baby Boomers (whom it defines as consumers older than 55), who accounted for a 31.1 percent share, with Millennials, between ages 18 and 34, following close behind at 30.9 percent. Despite the growth, it was still 4.1 percent less among Boomers from their spending in the year prior, while Millennial spending was up 13.1 percent.
“Millennials are brand-agnostic because they can be,” said Lewis. “They have access to more brands than the world needs, and at every possible distribution point. They are not interested in a megabrand that they see on the shoulder of everybody else. They define cool as individuality, as opposed to everybody having the same brand, and that’s what is killing Coach, Kate Spade and Kors.” Their loss, however, is apparently the luxury market’s gain. LVMH Moët Hennessy Louis Vuitton attributed the company’s 9 percent raise in revenues in the second quarter to a strong demand for Louis Vuitton’s Monogram handbags. Overall, the company’s fashion and leather-goods division — which includes Loewe, Louis Vuitton, Fendi, Céline, Givenchy, Christian Dior, Emilio Pucci, Kenzo and Marc Jacobs — saw noticeable growth, accounting for 10 percent versus 1 percent in the first three months of the year. Kering, meanwhile, did not break down its first-half sales by category, but saw revenues in its luxury activities division rise 24.6 percent, largely due to strong performances by Gucci, Saint Laurent and Bottega Veneta.
Luxury retailers have felt the boost. “On bags, we are having a fantastic fall,” said Billie Faricy-Hyett, handbag buyer at Net- a-porter. “We are beating targets week-on-week and are experiencing double-digit percentage growth on last year.” Added Natalie Kingham, buying director for Matchesfashion.com: “Bags as a category are a consistent strong seller and sales have grown significantly year-over-year.”
Justin O’Shea, buying director for MyTheresa.com, noted that the Munich-based e-commerce site had steady handbag sales, as well, thanks to compelling product, or, as he phrased it, “Sh-t, I need that now” pieces. “This is really the moment for Chloé, with the whole Seventies vibe,” he said, citing that brand and Saint Laurent as top sellers. Faricy-Hyett similarly named the two brands as Net-a-porter’s most popular handbags, with both playing into the Seventies aesthetic seen on the runway over the past few seasons.
Kingham highlighted other trends based on styles and silhouettes. “One style that continues to prove popular with our clients is the crossbody bag — this season, it has been our best-performing style so far,” she said. “We have also seen an increase in miniature, collectible bags for fall, such as the Fendi Micro Baguette. In terms of brands, Chloé, Saint Laurent, Balenciaga, Fendi and Valentino all continue to drive sales offering newness every season in terms of colors, style and design alongside their classic continuity product.”
“Consumers value brand heritage in handbags more than they do in fashion apparel, for instance,” said Kosha Gada, a principal in the Media and Retail practices of A.T. Kearney, a global management and strategy consultant. “This bodes well for luxury brands and their ability to always stay relevant to the core consumer segments.”
Added Lewis, “[Millennials] are more into quality. They will spend more for what they want. If they want something cool, they will hold off until they can afford it, and that is helping the luxury market.”
In another stratum, somewhere between luxury and contemporary, brands like Mansur Gavriel and A.L.C. have managed to infiltrate the space — and customer base — that Kors, Spade and Coach covet. “Our clients look for hardworking, easy-to-wear pieces that still have an incredibly luxe feel. Mansur Gavriel is one such brand,” said Kingham. “They are minimal and not season-led, more accessibly priced but still very desirable.”
“[Mansur Gavriel] is a phenomenon,” added Gary Wassner, co-chief executive officer of the Hilldun Corp. and founder of InterLuxe which last week acquired a majority stake in A.L.C. “They developed a product that consumers can relate to. It’s been years and years of more embellished product and they cleaned it all up and created a utilitarian bag that is both luxurious and simple. It resonated with everybody who wants to be fashionable but doesn’t want to spend $3,000 on a handbag. A.L.C. is also clean, but has a special twist to it. That’s what people are looking for, and what a lot of other brands missed. [Those brands are] just doing more of the same. They misunderstood the white space in the handbag market.”
So can brands like the big three make up for a few missteps and gain back that “cool” factor that’s driving today’s consumer? All three are certainly aware of the issue, with “newness” as a repeated buzzword in discussions following the lackluster earnings reports.
“Newness is without a question what is driving her interest,” John D. Idol, chairman and ceo of Michael Kors, told WWD at the time. “There are some really good things starting to happen in the handbag business….[for spring,] we are introducing our largest assortment of new handbag groups.”
Echoed Victor Luis, Coach Inc.’s ceo, “Consumers are looking for newness. There’s a lack of excitement in the market today.”
Still, Lewis contends it might be getting late in the game. “Kors is becoming ubiquitous in not only handbags, but in apparel and everything else,” he said.
“They are all over the place. Silas Chou and Lawrence Stroll, who are the architects of that business model, did the same for Tommy Hilfiger, which imploded because [it was] all over the place….Millennials have more access to stores and brands than you can imagine.”
And, he cautioned, if any brand has “a couple seasons of off-style or off-trend, the consumer walks away. They aren’t going to come back. What was a style or product issue turns into a brand issue, which means the consumer has turned away from the brand. Period. They aren’t coming back.”