Michael Kors Holdings Ltd. is working to turn things around, but it’s facing difficulties on almost all fronts.
While the company has launched its “Runway 2020” restructuring program, which includes closing up to 125 stores, mainly in North America, and moving away from its recent and heavily discounted past, competition in the accessories space as well as the rise of online marketplaces aren’t making easy plans to “elevate” Michael Kors and get it back to growth.
Chairman and chief executive officer John Idol said marketplace sellers were a “significant issue at every end of luxury. You’ve got The Real Real and Amazon and it’s a real channel of distribution now. A consumer who used to take our product and discard or donate it, they’re now reselling it and it’s taking revenue from Michael Kors as a business.”
Idol went on to characterize the growing popularity of marketplaces, particularly in North America, as a “very significant issue” the company is facing.
The first problem the brand is dealing with, however, is product — too much that’s been too cheap and unexciting for shoppers.
Accessories, namely handbags, are a point of intense focus at the moment with “innovation” and “novelty” being referenced repeatedly by Idol and Philippa Newman, president of accessories and footwear.
Things like changeable straps and even reversible bags are starting to hit stores – with more to come – but the overall crux of the “2020” plan is to make Michael Kors feel more like a luxury brand.
Part of plans to “elevate” the brand include an expansion of the high-end Michael Kors Collection, products of which will start to be mixed in at certain Michael Kors retail locations in order “to reinforce Michael Kors’ runway heritage and position us a global luxury leader,” according to Jaryn Bloom, president of retail.
The company also intends to move away considerably, but not entirely, from its wholesale channel, with Idol saying he sees the brand’s future as 30 percent wholesale and 70 percent retail, without specifying when that might come to pass.
About 100 stores, including flagships, are going to be renovated and likely include things like salons for shoes, another area of planned growth for the brand.
But the main growth drivers are seen in Kors’ burgeoning men’s category and its retail presence in Asia, each of which Idol said can become $1 billion segments of the brand.
Speaking of men’s, Idol said Kors’ market position “is perfect,” but admitted the $1 billion goal is “audacious.”
“There’s great opportunity for growth and we think there’s really a market out there,” he said. “There really hasn’t been a big, exciting men’s brand launch in about 20 years.”
Growth in Asia seems more assured, with plans for 100 storefronts to be added in China and elsewhere in the region over the next few years in addition to the 111 in operation now.
Even with growth in mind, the company is committed to “reinvigorating” Michael Kors and moving it away from an association with discounts and being easy to get, despite unit sales remaining high, and to a brand that gets its main strength from full-price retail.
“We trained our customer to think, not only can you get Michael Kors product, you can get it all the time on sale. We took the integrity of our pricing model and, quite frankly, eroded it,” Idol said. “I genuinely hope to report later that shipments are declining.”
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