Larger bags might be back in style again, and fashion watches as we know them today could be replaced by smartwatches in a few years.
Those are some early trends noted by Michael Kors Holdings Ltd. chairman and chief executive officer John Idol, who was speaking at the 23rd annual Goldman Sachs Global Retailing Conference on Wednesday in Manhattan.
“In North America, we believe that the handbag business will be slightly down in dollars, and that’s in totality, but up still significantly in units,” Idol said at the beginning of his presentation to investors.
According to Idol, the “overall handbag business globally will be in dollars flattish to maybe up a couple of percentage points.” But for its biggest market in North America, the business is being driven by two different factors — the trend of smaller bags and even smaller other goods to fit into the smaller bags.
“So both of those things are putting pressure on the AUR in the category. It’s just a fashion cyclical movement,” Idol said, adding that the $5 billion company introduced 18 different groups for the fall season and three of those are “starting to kick in very nicely in the bag size medium to large.”
That data point, according to Idol, indicates “we’re seeing a little bit of a move back. I don’t want to call it a moment when it’s completely transitioning, but we’re seeing a slight move back to medium-sized bags in particular.”
Idol also noted the still promotional activity in the department store arena, which is largely a North American issue. He said the department store channel needs to have fewer promotions, while the handbag business needs to see a return of sales of larger bags. “Some of [our] competitors have talked about seeing that happening as well, and that will be more of a fashion trend issue. And I think you will see the category begin to see some dollar growth again but [we] don’t see [that taking] place until next year.”
To get AURs up and bring back the credibility of the pricing structure for the brand, Michael Kors on Feb. 1 will no longer be included in friends and family events and in couponing events at department stores and other retailers.
Idol also spoke of the goal to be a $6 billion-plus firm over the next few years. “Most of that increase will be driven by international. We believe our $1 billion Europe business will go to approximately $1.5 billion. And we believe that Asia ultimately is a $1 billion market for us….And then we have a product category increase, which will be men’s wear, which we feel also ultimately could be close to a $1 billion business for us globally.”
He said the primary driver for the North American business would be through the opening of men’s stores, adding that the company could potentially open 500 stores that average $2 million in sales each, bringing that business to $1 billion.
Idol also said the company will test same-day shipping in the November-December time frame. “We’re really defining what the service means to the customer today because we think that service is now becoming a key work in luxury….We also consider Amazon to be a competitor of ours because we’re all competing for dollars and [people] are spending on that. And if you can get something quickly, we believe that is a form of luxury in and of itself,” he said, adding that having 800 stores globally will enable the brand to deliver to consumers’ homes rapidly. “We’re looking at various delivery companies that we’re going to partner with [on] that,” Idol said.
The company, which just launched its Access smartwatch business, will be considering other items that might be lower than the current range of $350 to $395 for next year, as well as adding some newness to the category, Idol said. The tracker category, with styles starting at $95, is wide open, Idol said, noting that a competitor’s version is more male oriented while Michael Kors’ are a more feminine design.
“I think when you sit down for the next two to three years, fashion watches won’t exist, as you know them today. They will all be smart watches,” he predicted.