Michael Kors results illustrate long ‘to-do list’

While the latest Michael Kors results are not exactly glittering, compared to last quarter’s incredibly dismal performance, the numbers are something of a step forward.

That said, it is clear that the group still has an incredible amount of work to do in rebuilding the brand and reconnecting with customers. In this regard, Michael Kors is a long way behind firms like Coach on its journey to recovery.

Michael Kors has reported a 23 per cent slump in wholesale sales, a significant drag on the top-line. This is a necessary evil as Michael Kors withdraws from channels and retailers that no longer fit with its brand strategy. In essence, reducing ubiquity comes with a price attached.

Retail helped offset some of this decline, with revenues rising by 10.1 per cent. However, this was mostly thanks to the acquisition of the Greater China license and the opening of 67 new stores over the past year.

Outside of Asia, retail performance was more subdued with European retail sales up by just 2.5 per cent and revenue in the Americas virtually flat.

Retail comparable sales, which slipped by 5.9 per cent, continue to be a cause for concern. These come off the back of a 7.4 per cent decline in the prior year and provide the clearest indication that Michael Kors has not yet re-established itself as a go-to luxury brand. While it would be unreasonable to expect all of the custom lost through pulling back from department stores to be regained, there should be at least something of a fillip to Michael Kors own stores. This is a dynamic we’ve seen with brands like Coach, but which is mostly absent with Michael Kors.

To be fair, Michael Kors has recognised the need to produce more innovative, fashion-forward collections and has taken some steps forward with new handbag collections, updated styles of its smartwatch, and a much-improved accessories collection. Individually, some of these initiatives have found success; collectively, they are insufficient to reframe the image of Michael Kors in the minds of many consumers who still associate the brand with its ubiquitous past.

Michael Kors needs a much more cohesive brand reinvention if it is to drive future success.

Given the current performance, this year does not look like it will be one of delivery. While the numbers may strengthen, the rest of this fiscal will essentially be one of rebuilding and refining the brand, as well as closing further excess capacity and investing in channels and stores that have the best forward potential.

To its long to-do list, Michael Kors can now add the integration of Jimmy Choo as one of its chores. Given the relative sizes of the two brands, this should not prove to be an enormous distraction for management.

However, as much as the acquisition makes sense in terms of creating a luxury group with more balance, and giving Michael Kors more of a toehold in Europe, it is not the solution to all of the company’s ills.

While there is an opportunity to grow Jimmy Choo to a $1 billion business, this will ultimately prove fruitless unless Michael Kors can get its own brand back on track.

 

 

 

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