The new buzz phrase among contemporary handbag firms is “quality of sale.”
On Thursday, Kate Spade posted third-quarter profits compared with the year-ago loss. Net income was $2.3 million, or 2 cents a diluted share, on a 10.7 percent gain in net sales to $277.3 million. Boosting results was a deliberate pullback in a number of key sales and promotional events.
A day before, Kors said it saw net income fall 6.7 percent to $193.1 million, or $1.01 a diluted share, on a 7.6 percent gain in net sales to $1.09 billion, with the EPS beat 12 cents better than what Wall Street was expecting. Kors chairman and chief executive officer John D. Idol said the company would be pulling back on inventory in the department store channel, which will result in fewer promotions down the road. And even though Coach last week saw first-quarter net income fall 19.1 percent to $96.4 million, or 35 cents a diluted share, on a 0.8 percent dip in net sales to $1.03 billion, it was still better than what Wall Street expected. The company has been reducing promotions, particularly involving its eOutlet events.
These and other contemporary handbag brands still have lots of work to do in getting more disciplined. Cathy Han, chief executive officer and cofounder of intuitive data analytics platform 42 Technologies, said, “Overall, there has been a slight trend towards an increase of the overall percentage of markdowns. We saw discounts of between 20 percent to 35 percent on average in the last quarter.” And while sales stayed constant, margins were lower for brands due to the discounting.
So why are brands more willing now to stand their ground than ever before?
According to Craig Leavitt, ceo of Kate Spade, “This is an important effort that we have for us to ensure the long-term health of the brand by extracting ourselves of this activity.”
Leavitt explained that one of the things that’s changed over the past 12 to 18 months at the department store level has been the practice of retailers to “match” promotional pricing. “It used to be an isolated few days of a friends and family event, [but] now it’s [become] a period of rolling events with each [sale] matching the others,” he said, noting that has created a situation where there is a series of promotional events running for weeks or even months at a time. That isn’t sustainable for any business, Leavitt said.
Leavitt also said that with the rise in usage of mobile devices, such as a tablet or smartphone, the consumer’s capability to compare prices in a way that wasn’t feasible a few years back has contributed to the onslaught of retail discounting.
“Given the strong trajectory of our brand, we are looking for ways to ensure full-price selling….While we can control pricing in our stores, we are not going to allow a situation to develop where we sell at full price and the department store is selling at 25 percent to 30 percent less,” Leavitt said.
In addition, dropping participation in storewide department store promotional events, the company pulled back on the number of flash sales on its site. Leavitt said even with the pullbacks, there were “material increases in our traffic, conversion and full-price selling.” He emphasized that the consumer is buying the Kate Spade brand at full price. For the quarter, the company said direct-to-consumer comparable-sales growth was 16 percent, or 11 percent excluding e-commerce.
Other brands are following suit too. Christopher H. Peterson, president of global brands for Ralph Lauren Corp., which on Thursday posted a second-quarter earnings beat, said a pullback in stockkeeping units is a small part of an overall operational initiative that includes a focus on controlling the promotional cadence at retail. Peterson said that helps to manage the inventory buy and elevate full-price selling.
While keeping tabs on quality of sale certainly helps, companies may need to do more to at least maintain market share.
Karen Moon, ceo and cofounder of visual analytics platform Trendalytics, said the high margins in the handbag category mean more firms in the contemporary space are looking to increase their presence in the sector. “There are 1,698 brands, 288 retailers and 110,000 skus for handbags, excluding wallets,” Moon said, noting that 40 percent of the skus are for handbags having price points between $100 and $500.
Over the years, there’s been an overassortment in mature styles, such as 13,000 skus for the satchel, while only 1,000 skus for the saddle bag, the latest hot silhouette. Online searches for satchels were down 9 percent versus a year ago, but up 12 percent for saddle bags, Moon said.
She also said that emerging brands such as Mansur Gavriel, whose bucket bag has been selling out, is an example of an emerging pure play, which is increasing the competition for the mature brands.
Han of 42 Technologies sees the same trend: “Once a consumer owns a few products from a known brand, [she] starts to look for something more unique, something with the cool factor. That’s where we see growth of some of the smaller emerging brands. One reason why Rebecca Minkoff has done so well is because her styles are tailored and fashionable, and not so much a mass-market product that everyone has it.”