Luxury Institute News

July 27, 2017

Jimmy Choo purchase just the start, says Michael Kors CEO John Idol

South China Morning Post
July 26, 2017

Michael Kors isn’t done with deals. The fashion house, which agreed to buy luxury shoemaker Jimmy Choo for about US$1.2 billion this week, is planning to build a portfolio of upscale brands. And that means acquiring more businesses, possibly in the same billion-dollar range, according to chief executive officer John Idol.

The company is turning to deals as it tries to regain lost sales – a slump brought on in part by its flagship brand becoming too exposed. Michael Kors plans to focus on integrating Jimmy Choo, known for its Sex and the Citystilettos, in the next six to 12 months. Then it will start shopping around again, Idol says.

The Jimmy Choo acquisition was Michael Kors’s biggest effort to expand beyond its own brand name since its initial public offering in 2011. The takeover gives the company a greater presence in higher-end luxury – and helps it play catch-up with Coach Inc., which agreed to buy Stuart Weitzman in 2015 and made a US$2.4 billion deal to buy Kate Spade & Company in May.

It also helps decrease Michael Kors’ reliance on handbags. Both Michael Kors and Coach are trying to become something akin to European luxury conglomerates, with a diversity of brands.

“These two fashion houses are trying to achieve what Kering and LVMH have done in an American way,” says Milton Pedraza, a New York-based luxury consultant.

But Michael Kors faces a critical challenge: maintaining the cachet of Jimmy Choo while building up its distribution.

“You don’t overexpose it, you don’t oversell it and overexploit it,” Pedraza says. “You can still grow viably without growing like a weed and becoming a weed.”

Like Ralph Lauren, Michael Kors opened too many stores and stretched itself too thin. The company also has relied heavily on struggling department stores and discounters like T.J. Maxx, where steep discounts hurt the brand’s image. On the Macy’s website, for example, Michael Kors’s signature US$298 tote bags are currently sold for as low as US$149.

Its stock tumbled 32 per cent in the past year as the company struggled to mount a turnaround plan.

As Michael Kors works to regain its prestige, it will close up to 125 retail locations in the next two years. The company also is renovating the stores that remain, stepping up product innovation and further cutting promotions – part of the Runway 2020 turnaround plan that Idol announced in May. The Jimmy Choo acquisition will increase the sales contribution of its footwear business to 17 per cent from 11 per cent currently, Idol says.

Michael Kors is buying Jimmy Choo from JAB Holding Company, owned by the billionaire Reimann family. It will pay 230 pence a share for the shoemaker, a premium of 18 per cent over Monday’s close. The price is equal to about 13 times Jimmy Choo’s adjusted earnings for 2017, according to Bloomberg Intelligence analyst Deborah Aitken.

Jimmy Choo rose to prominence in the late 1990s, boosted by high-profile fans, including the late Princess Diana and the fictional Carrie Bradshaw in television series Sex and the City. The brand gets its name from its Malaysian-born co-founder, who created it in 1996 with British designer Tamara Mellon.

For future acquisitions, Michael Kors could seek luxury-footwear and accessories makers with visionary designers, Idol says. The company is looking for names that aren’t already widely distributed. “We are definitely interested in having things that we can help develop.”

Source: http://www.scmp.com/lifestyle/fashion-luxury/article/2104185/jimmy-choo-purchase-just-start-says-michael-kors-ceo-john 

July 25, 2017

Is Tiffany & Co. Amazon-proof?

CBS MoneyWatch
By: Jillian Harding
July 24, 2017

Though many major American retailers have had their foundations shaken by Amazon (AMZN) and the wider explosion in e-commerce, Tiffany & Co. (TIF) appears to be a rare diamond in the rough of brick-and-mortar retail.

Exhibit A: The company’s stock price has jumped nearly 30 percent over the last year, even as department stores like Macy’s (M), J.C. Penney (JCP) and Sears struggle with shrinking growth.

Analysts point to several reasons why Tiffany’s, despite a recent dip in sales, remains in favor among investors. Those include the touch-and-feel experience of shopping for fine jewelry, the company’s potent brand, and a global, and well-heeled, customer base.

Another advantage is Tiffany’s small physical footprint of 125 stores in the U.S. and roughly 300 total worldwide. Its stores also are in upscale malls, which have been less affected by the mass department store closings that have affected other malls.

That helps keep Tiffany’s operating costs low and its stores churning out profits, with sales of around $2,600 per square foot in 2016 and a sparkling 62 percent gross profit margin.

Like other retailers, of course, Tiffany must cope with the impact of e-commerce and, as ever, the changing tastes of consumers. To that end, it recently named Alessandro Bogliolo, a veteran of luxury retail who is known for his ability to revamp brands like Bulgari, as its new CEO.

As with many luxury retailers, Tiffany also is looking to add millennial buyers that may be more interested in experiences and paying down student loans than spending on big-ticket jewelry. The trick is to attract younger shoppers while maintaining its core high-end client.

One way to appeal to younger buyers is by offering lower-priced fashion jewelry, which does not include gemstones and carries a lower price tag than fine gemstone jewelry. The fashion jewelry category was responsible for 33 percent of Tiffany’s sales in 2016.

Edward Jones analyst Brian Yarbrough said the company must be cautious about not devaluing its brand. While having different price points opens the door to a different mix of consumers, “You have to be careful — they had this problem in the early 90s… People who are buying $20,000 or $30,000 pieces don’t want teens running around,” he said.

Retail consultant Howard Davidowitz, CEO of Davidowitz & Associates, said that for Tiffany to retain the luxury customer, the company might consider looking to do an offshoot for fashion jewelry or acquire a brand like Pandora to appeal to a different kind of consumer.

“If you have a store and you load the store up with a lot of middle-level merchandise because you are trying to sell to tourists and everyone else, they are going to want to buy a small item and get the Tiffany bag. If you do that, you are a going to lose luxury customers.  I don’t think there’s any way to do it unless you can come up with a store within a store strategy — there is clarity in that.” he told CBS MoneyWatch.

In reporting its first-quarter earnings, the company laid out a new strategy for driving growth, including finding ways to more effectively engage with customers, adding new products, and revamping or even closing some stores.

Yarbrough said Tiffany needs to refresh its product line and improve its marketing, while adding that a greater focus on supply-chain efficiency could boost the retailer’s profit margin. But he also thinks that the company’s core strengths — its allure in overseas markets and high-end jewelry niche, in which customers want to make purchases in person — help buffer it from the competitive ravages of e-commerce.

“We think it’s a brand, as well as a retailer, that is more Amazon-proof,” he said.

Echoing this theme, Cowen senior retail analyst Oliver Chen wrote in a recent note, “In our view, Un-Amazon-Able qualities include… store and vertical integration focus at Super-Premium luxury stocks (Tiffany, LVMH, Sotheby’s),” he said in a recent note.

But Tiffany can’t rest on its diamond-studded laurels, Davidowitz said, noting that high-end clothing retailers with strong brands have been hurt by e-commerce and that Amazon could eventually decide to encroach on the jeweler’s turf.

“They have to have a plan to address the gigantic change taking place… Now is the time to do it. There is no way to say people are not going to buy jewelry online.”

Milton Pedraza, CEO of retail research group the Luxury Institute, said the key for Tiffany is to foster strong relationships with customers built on its compelling products and prestigious brand. 

“I think the world will become a barbell — at the one end it will be Amazon, commoditized products — and then there will be real luxury,” he said. “There are a lot of ‘luxury’ pretenders….Tiffany is no pretender. I think they will continue to survive and thrive.” 

Source: http://www.cbsnews.com/news/is-tiffany-co-amazon-proof/ 

May 12, 2017

‘The unfortunate thing about Macy’s’: Just about everything

The Washington Post
By: Abha Bhattarai
May 11, 2017

Macy’s, it seems, can’t catch a break.

The beleaguered retail chain, which has been aggressively closing stores in recent months, announced more bad news Thursday: Sales were down in the first quarter of the year, leading to a 39 percent drop in profits.

As a result, the company’s stock price plunged more than 16 percent Thursday, to its lowest level since 2011.

Macy’s steady decline, analysts say, is the result of a number of factors, including the demise of shopping malls, as well as competition from online stores and off-price retailers such as TJ Maxx. Another issue: The company tends to sell run-of-the-mill products that shoppers can find more easily — and often more cheaply — elsewhere.

“Here’s the unfortunate thing about Macy’s: There’s nothing that sets it apart,” said Milton Pedraza, chief executive of the Luxury Institute, a New York-based research firm. “It’s crowded, it’s messy, the service is poor. The business model of Macy’s is no longer justifiable in a world dominated by Amazon and Walmart.”

The company’s woes come as other longtime retailers like Sears and JCPenney face similar headwinds. Americans are increasingly skipping the shopping mall in favor of buying online, which means department stores are left with hordes of inventory and pricey real estate. Macy’s last year announced plans to close 100 of its stores, and analysts said more closures may be in the works if the company’s fortunes don’t change soon.

“There are so many structural issues here that it’s going to take years for all of these challenges to play out,” said Sucharita Mulpuru, a retail analyst for Forrester Research. “This is a company that is fundamentally tied to shopping malls, and I don’t know that there’s any hope of rejuvenation there.”

After a dismal holiday season, 2017 hasn’t turned out to be much better. Same-store sales — a closely-watched industry metric — fell 4.6 percent, marking the ninth consecutive quarter of declines. Profit, meanwhile, plunged nearly 40 percent to $70 million from $115 million a year earlier.

“These are unusual and challenging times for retail, especially for mall-based department stores,” Jeff Gennette, who took over as Macy’s chief executive in March, said in a Thursday morning call with Wall Street investors. “We don’t have our head in the sand as to the significant challenges we face in getting the business growing again. We certainly don’t have all the answers yet, but we are working on them with a sense of urgency.”

To that end, he said, the company is revamping its fine jewelry and women’s shoe departments, adding furniture and mattresses to 60 locations, and forging exclusive partnerships with brands like DKNY. It is also planning to expand its buy-online, pick-up-in-store options in an effort to win over shoppers who have grown accustomed to shopping from their homes.

“The consumer has fundamentally changed,” Oliver Chen, a retail analyst for Cowen Group, told CNBC earlier this year. “Customers really expect speed, and the way in which customers shop now, they want their goods immediately.”

The retailer is facing considerable competition online. Amazon.com, which has a private-label clothing brand and is experimenting with custom-fit items, is widely expected to usurp Macy’s as the country’s largest clothing retailer this year. (Jeffrey P. Bezos, Amazon’s founder and chief executive, owns The Washington Post.)

Macy’s, founded nearly 160 years ago in New York, has been a household name for decades. Through the years, it has bought up a number of regional chains, including Hecht’s, Foley’s, Rich’s and Bullock’s, and consolidated them into the country’s largest department store brand. Today, Macy’s parent company also owns the department store Bloomingdale’s and beauty chain Bluemercury.

In recent months, it has also begun experimenting with its own off-price store, Backstage, which it has been quietly opening inside existing locations. The goal, executives said, is to target shoppers who might otherwise go to Nordstrom Rack or TJ Maxx. Two-thirds of Macy’s most loyal customers and 70 percent of millennials shop at off-price retailers each month, Gennette said.

“Macy’s needed to solve for that,” Gennette said, adding that the company is also lowering prices in certain departments, such as housewares. “We’re obviously dropping our prices to be competitive. We don’t want to have like-products that are more expensive online or in our stores than our competitors. That is why we have really pushed to make sure we’re giving customers value.”

But Pedraza, of the Luxury Institute, says that may not be a viable strategy.

“All they’re going to do is dig a deeper hole,” he said. “They may get a little bit of a dead cat bounce that way, but other than that it’s not a long-term strategy.”

In recent years, analysts say, retailers have been engaged in a race to the bottom, offering never-ending promotions and sweeping discounts as a quick fix for long-term problems, and Macy’s has been no exception. But the plan has also backfired: Customers have become trained to expect large-scale discounts on everything they buy, which means retailers are increasingly settling for slimmer profit margins.

“If you missed last week’s sales numbers, you can literally make that up with a promotion this week,” Mulpuru said. “That’s the only short-term lever retailers have. Anything else — new real estate, new inventory, new vendors — is going to take six months to three years, which is why retail has degenerated into a promotional business.”

As Macy’s executives scramble to shore up sales, they are also finding creative ways to bring in extra income. The company has sold off the top floors of certain properties, including stores in Brooklyn and Seattle, to be converted into office space. Its flagship in New York’s Herald Square, which takes up an entire city block, is also being floated by analyst as a potential source of cash.

“The value of that real estate alone is billions of dollars,” Mulpuru said. “This is a company that’s in trouble, but they’ve still got a few aces in their back pocket. It takes a long time to kill a retailer, and I don’t think Macy’s is there, yet.”

Source: https://www.washingtonpost.com/news/business/wp/2017/05/11/the-unfortunate-thing-about-macys-just-about-everything/?utm_term=.fec3244ec83b

May 9, 2017

Millennials think Coach is ‘boring.’ Will acquiring Kate Spade help?

The Washington Post
By: Abha Bhattarai
May 8, 2017

Luxury handbag maker Coach is buying rival Kate Spade, a brand known for its whimsical designs and colorful patterns, for $2.4 billion in cash, the companies announced Monday.

The deal would bring together two New York-based brands that have competed in recent years to win over younger customers and build a global presence.

“This deal gives Coach a real toehold into the millennial market,” said Ed Yruma, a retail analyst at KeyBanc Capital Markets.

“Kate Spade can substantially expand in China and Japan — there are so many new opportunities for revenue — and Coach is in a great position to take that on,” said Oliver Chen, an analyst at Cowen Group. “The fact that Coach has transformed itself before gives it credibility to do it again.”

Coach executives have spent three years trying to persuade customers to think beyond its ubiquitous logo bags and outlet stores. To that end, Coach introduced its 1941 luxury label, acquired shoemaker Stuart Weitzman, added more stores abroad and stopped offering as many discounts. The changes seem to be working: After years of stalled growth, profits and sales are up.

Now executives say they would like to make similar changes at Kate Spade — where 60 percent of sales come from millennials — to turn it into a larger, more global brand.

“The lessons we have learned during our own transformation provide a blueprint for guiding our strategy with Kate Spade,” Victor Luis, chief executive of Coach, said in a Monday call with investors. “We believe our extensive experience in opening and operating specialty retail stores can unlock Kate Spade’s largely untapped global growth potential, notably in Asia and Europe.”

Among his first moves, Luis said, would be to cut back on online flash sales and deep discounts on Kate Spade goods.

“These channels are profitable and can drive growth,” he said but warned that “they can lead to brand deterioration over time.”

On Monday, for example, Kate Spade’s website was touting half-priced cross-body satchels for $149 (“today only!”). Another bag, the Cobble Hill Adrien, was discounted 60 percent, from $428 to $171.

“There’s been a vicious cycle of overproducing, then discounting prices and hurting your own brand,” said Milton Pedraza, founder of the Luxury Institute, a New York-based research firm. “It will be painful to dial this back — surgical, even — but it needs to be done if Kate Spade is going to become a lean, efficient brand.”

Coach is paying $18.50 for each share of Kate Spade, a 9 percent premium on Friday’s closing price. The deal is expected to be finalized in the third quarter of this year, and executives say they hope to save $50 million by consolidating parts of the business over the next three years.

But while Wall Street seemed pleased by news of the takeover — shares of Kate Spade rose 8 percent Monday, while shares of Coach were up 5 percent — some customers were wary. Kate Spade shoppers took to social media to voice their misgivings.

“WHY WHY WHY UGH,” a user named HellOnHeelsGirl tweeted in response to the news.

“I find Coach to be boring with their brown, unoriginal bags,” tweeted another. “Kate Spade had color and uniqueness! Bye bye pretty bags.”

Coach executives said Kate Spade will remain an independent brand with its own design, merchandising, marketing and sales teams. In addition to handbags and wallets, the company has expanded into jewelry, children’s clothing and homeware.

Kate Spade founded the eponymous brand with her husband in 1993. (She recently legally changed her name to Kate Valentine to coincide with the launch of her new brand, Frances Valentine). The couple sold a majority stake of Kate Spade to Neiman Marcus in 1999. Liz Claiborne bought the brand for $124 million in 2006. (Liz Claiborne was later renamed Fifth & Pacific and is now called Kate Spade & Co.)

In December, the Wall Street Journal reported that Kate Spade began looking for a potential buyer after shareholders said a larger company could help the brand grow faster. Analysts quickly began speculating that Coach would be the buyer.

“This has long been expected,” said Dana Telsey, chief executive of Telsey Advisory Group, a research and consulting firm in New York. “Being part of a larger organization will obviously get [Kate Spade] going where it wants to, faster.”

And, she added, this is part of Coach’s long-term plan to assemble a collection of brands into what it is calling a “New York-based house of modern luxury.”

“This won’t be the last acquisition for Coach,” Telsey said. “This is part of something much bigger.”

Two years ago, Coach paid $574 million for Stuart Weitzman and hired a former Valentino executive to become the brand’s chief executive. In the quarters since, the luxury shoe brand has turned a steady profit and helped boost its parent company’s earnings.

“With Stuart Weitzman, Coach has demonstrated that it can bring in another brand and nurture it,” said Pedraza of the Luxury Institute. “Now the challenge will be, can they do the same for Kate Spade without watering it down?”

Source: https://www.washingtonpost.com/business/economy/millennials-think-coach-is-boring-will-acquiring-kate-spade-help/2017/05/08/50bd9e9c-33f9-11e7-b4ee-434b6d506b37_story.html?utm_term=.ce0be13f8676

 

High-end bag maker Coach splurges and buys rival Kate Spade

Marketplace
By: Jed Kim
May 8, 2017

Luxury goods maker Coach announced today it’s splurging. It has agreed to buy rival company Kate Spade for $2.4 billion. Coach has already acquired high-end shoe designer Stuart Weitzman, and with the Kate Spade purchase, it seems it’s on a mission to create a stable of luxury brands.

To hear the fully story, including insights from Milton Pedraza, click the link below to access the Marketplace website for the audio story: https://www.marketplace.org/2017/05/08/business/high-end-bag-maker-coach-splurges-and-buys-rival-kate-spade 

February 27, 2017

Ralph Lauren CEO To Depart Over ‘Different Views’ With Founder, Shares Tumble

Forbes
By: Lauren Gensler
February 2, 2017

Stefan Larsson (left) and Ralph Lauren. (AP Photo/Jason DeCrow)

Stefan Larsson (left) and Ralph Lauren. (AP Photo/Jason DeCrow)

That didn’t last long: Less than two years after taking the top job, Ralph Lauren’s CEO will leave the company over differences of opinion with its billionaire namesake founder and chairman.

According to a release from the company on Thursday, chief executive Stefan Larsson and Ralph Lauren didn’t see eye to eye on the direction of the company. Larsson, a veteran of Old Navy and H&M who took the top job from Lauren himself in October 2015, has agreed to leave the American retail empire on May 1. He will receive $10 million in severance over the next two years.

“Stefan and I share a love and respect for the DNA of this great brand, and we both recognize the need to evolve,” said Ralph Lauren, 77, who Forbes estimates is worth $5.6 billion. “However, we have found that we have different views on how to evolve the creative and consumer-facing parts of the business. After many conversations with one another, and our Board of Directors, we have agreed to part ways.”

 Shares, which have slid 22% over the past 12 months, fell another 11% to $77.69 in morning trading.

Ralph Lauren also reported third quarter earnings on Thursday. Net income slid to $82 million, or 98 cents per share, from $131 million, or $1.54 per share, a year earlier. Excluding certain items, earnings came in at $1.86 per share, which beat the $1.64 that Wall Street analysts were looking for.

Revenue fell 12% to $1.71 billion during its holiday quarter, which was in line with analyst estimates.

Ralph Lauren, perhaps best known for its polo shirts, has been closing stores and cutting jobs as part of a multi-year growth planto put the company back on track. It has also shed organizational layers to help speed up decision-making and worked to get its products in stores at a quicker pace, taking a page out of the fast-fashion playbook.

In fiscal 2017, the company expects restructuring charges of about $400 million. It also projects savings of $180 million to $220 million related to cost-cutting efforts.

The retailer said it will begin conducting a search for a new chief executive and chief financial officer Jane Nielson will help out in the interim. Ralph Lauren will continue in his role as executive chairman and chief creative officer.

Source: http://www.forbes.com/sites/laurengensler/2017/02/02/ralph-lauren-stefan-larsson-ceo-departure/#57781e5518c4

January 16, 2017

To be creative or not? That’s the question for luxury handbag-makers

FashionUnited
By: Angela Gonzalez-Rodriguez
January 16, 2017

The economic slowdown in China; terror attacks in main international luxury plazas such as Paris and the fights against counterfeits have taken a toll on handbag-makers’ creativity.

According to a recent research by Edited, a fashion analysis firm, Michael Kors Holdings Ltd., Prada SpA, LVMH’s Louis Vuitton and Burberry Group PLC all reduced the number of styles introduced last quarter.

In the final three months of 2016, the number of new styles introduced by Michael Kors dropped 24 percent from the preceding quarter. Prada and Louis Vuitton rolled out 35 percent fewer new designs, while the number at Burberry dropped 8 percent, according to Edited, whose clients include Ralph Lauren Corp. and luxury e-commerce retailer Net-A-Porter.

On the other hand, a few brands such as Kate Spade & Co. and Ralph Lauren, did introduce more new designs in the fourth quarter, Edited found.

Brands needs their bags sales, which account on average for 40-60 percent of total sales.
“There’s a feeling of doom out there in the industry – everything is defensive and not offensive,” said Milton Pedraza, a luxury consultant who runs the Luxury Institute. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

And truth is that luxury brands need their bag sales. Bags account for 39 percent of Gucci’s products priced over $1,000. They make up 65 percent of Fendi’s and 82 percent of Prada’s 1,000 dollars or more assortment, reports Edited in their corporate blog.

“Dropping newness too low could certainly threaten sales,” said Katie Smith, a senior fashion analyst at Edited. In fact, rolling out the right number of styles is no easy task. Smith stresses that brands need to strike a careful balance between creating an excess of inventory while ensuring they remain trendy and therefore relevant.

Handbag-makers have faced other challenges as well. Younger consumers are demanding faster availability of the latest trends, and some are showing preference for shoes and jewelry over bags.

Sales growth in handbags is estimated to decelerate to 3.1 percent by 2020, from 16 percent in 2012, according to data collated by Euromonitor. The slowdown has forced companies to diversify. Michael Kors is expanding into menswear, and Kate Spade is growing in other categories such as home goods.

In this regard, Pedraza recalls that “For the first time in many years, there’s a real sense of threat,” he said. Companies are focused “on survival and dismantling the old structure.”

Photo: Louis Vuitton Official Web

Source: https://fashionunited.in/news/business/to-be-creative-or-not-that-s-the-question-for-luxury-handbag-makers2/2017011614691

January 12, 2017

Handbag makers find it hard to carry on like before

The Strait Times
January 12, 2017

They’re cutting back on styles as demand for luxury items wanes

NEW YORK • Handbag makers are busy battling waning demand and markdowns at stores, and that may have diverted their attention from what could make them successful in the long run: creativity.

Michael Kors Holdings, Prada, LVMH’s Louis Vuitton and Burberry Group all reduced the number of styles introduced last quarter, according to Edited, which provides fashion industry analysis.

Though manufacturers and retailers are worried about being saddled with too much merchandise, the lack of innovation will make it tough to recapture the excitement of shoppers, said Mr Milton Pedraza, a luxury consultant.

“There’s a feeling of doom out there in the industry – everything is defensive and not offensive,” said Mr Pedraza, who runs consulting firm Luxury Institute. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

Demand for US high-end products took a hit last year from a strong dollar and global economic woes. Terrorism fears also crimped tourism, a big source of luxury spending. Shares of upscale brands suffered.

Michael Kors, Coach and most other rivals underperformed the Standard & Poor’s 500 Index in last year. Ralph Lauren was down 19 per cent last year.

TIME TO BE BOLD

There’s a feeling of doom out there in the industry – everything is defensive and not offensive. What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.

MR MILTON PEDRAZA, a consultant who runs the Luxury Institute.

Prada was the rare exception, rising 9 per cent in Hong Kong last year to outperform the Hang Seng Index’s 0.4 per cent gain. It rose as much as 9.6 per cent to HK$30.70 yesterday, reaching the highest intra-day level since March.

At many stores, the handbag selection from several high-end labels was significantly smaller over the holidays. In the final three months of last year, the number of new styles introduced by Michael Kors dropped 24 per cent from the preceding quarter.

Prada and Louis Vuitton rolled out 35 per cent fewer new designs, while the number at Burberry dropped 8 per cent, according to Edited, whose clients include Ralph Lauren and luxury e-commerce retailer Net-A-Porter.

Michael Kors did not have an immediate comment on the reduction, while LVMH, Prada and Burberry declined to comment.

Rolling out the right number of styles is no easy task. Brands need to strike a careful balance between creating a glut of inventory – so-called “dead stock” – while ensuring there is enough trendy, new merchandise to entice consumers, said Ms Katie Smith, a senior fashion analyst at Edited.

“Dropping newness too low could certainly threaten sales,” she added.

A few brands, including Kate Spade and Ralph Lauren, did introduce more new designs in the fourth quarter, Edited found. But many tried to ride out the holidays without breaking fresh ground.

Handbag makers have faced other challenges as well. Younger consumers are demanding faster availability of the latest trends, and some are showing preference for shoes and jewellery over bags.

Sales growth in handbags is estimated to decelerate to 3.1 per cent by 2020, from 16 per cent in 2012, according to market research firm Euromonitor.

Source: http://www.straitstimes.com/business/handbag-makers-find-it-hard-to-carry-on-like-before

Should luxury retail move away from discounting?

Luxury Daily
Sarah Jones
January 12, 2017

Discounting is on the rise in the luxury sector, as retailers strive to make up for slowed spending by cutting prices.

The annual post-holiday sales are currently on, promising price cuts of up to 80 percent. While discounting may drive traffic and sales, is the hit to retailers’ positioning and profits worthwhile?

 “Luxury brands require strong leadership and vision to manage soft periods,” he said. “Weak brands discount when sales are weak. The trick is getting clients back without discounting.”

Reduced retail

A number of factors are making success in the luxury industry more difficult, and financial results are showing the challenging climate. From reduced tourist traffic to the slowdown in China, retailers are finding themselves needing to recoup sales.

According to a recent report from Bain, off-price retail is now 11 percent of the luxury market. While this segment of the sector grew less rapidly in 2016, it was still up by double digits.

Additionally, 37 percent of luxury sales today come from marked down merchandise (see story).

Luxury retailers including Nordstrom and Saks Fifth Avenue have aggressively expanded their off-price chains. Nordstrom Rack’s 215 stores far outnumber its 123 full-line stores, and Saks Off 5th similarly has 118 locations compared to the brand’s 41 full-line outposts.

 

Nordstrom ecommerce

Image courtesy of Nordstrom

“In the luxury boom of the mid-2000s, there was a lot of ‘aspirational luxury shopping,’ fueled by mass affluent and upper middle class consumers, rather than a traditional wealthy consumer,” said Steve Kraus, chief insights officer at Ipsos. “The attitude at the time was ‘I’m going to buy luxury, it’s going to be expensive and it’s going to be worth it.’

“With the recession, and continuing on afterwards, this aspirational luxury shopping has dried up, and the consumer mindset has become ‘I’m going to buy luxury, and I expect a deal,’” he said. “It’s the great paradox of the recession – it didn’t lower consumer expectations, it raised them.

“Value expectations are now a part of luxury in a way that they weren’t in the mid-2000s. Discounting is now widespread, in luxury and in mass markets, particularly as more and more shopping is done online.”

While many retailers limit their sales to specific times of the year, such as after the holidays, when they do cut prices it becomes the main event.

For the opening of the Harrods Sale on Boxing Day, the retailer traditionally pulls out the stops for the crowds gathering in line, passing around hors d’oeuvres and putting on a show.

Selfridges saw 1 million visits to its ecommerce site as its winter sale kicked off, and its stores pulled in $2.5 million in sales within the first hour of business on Dec. 26 (see story).

 

Harrods Sale promo

Promotion for Harrods sale

While the blowout sale at the end of a season is common practice among multi-brand retailers, some particularly tightly distributed labels avoid this strategy.

Louis Vuitton reportedly destroys merchandise that is unsold at the end of a season rather than selling it at a reduced price.

“In the long-term, I think success has come more to luxury brands who have not discounted–for example, Louis Vuitton, Hermès, etc.,” Mr. Kraus said. “They build their value equation around quality and heritage, rather than discounts.”

In general, luxury brands are trying to pull back and become more strategic in how they approach off-price.

For instance, U.S. fashion label Michael Kors has pulled back its inventory in department stores mainly to avoid its merchandise being placed on sale by its retail partners, protecting both its profits and image (see story).

 

Michael Kors

Image courtesy of Michael Kors

“Many brands are moving away from department stores due to their addiction to discounting,” Mr. Ramey said. “Discounting exists outside the ‘luxury code.’

“Luxury is about fantasy; price is about reality. Discounting price diminishes brand value,” he said. “Consumers demand value. Too many retailers define value as price.

“Successful luxury brands are disciplined. They must reinforce the brand narrative and create desire. No luxury brand has ever been built on price.”

Consumer behavior

Luxury brands often believe that their clientele will not be swayed by a deal, but this may not always be the case.

According to a report from Unity Marketing, the majority of affluent consumers employ a number of shopping and saving tactics to manage their money, with 52 percent of ultra-affluents regularly comparison shopping.

Luxury marketers often think that affluent consumers want to spend their money as fast as they earn it, but the affluent are actually invested in saving their money. These strategic spending habits call for a revised marketing plan that recognizes that consumers care more than previously thought about what they purchase (see story).

 

bloomingdales.athletic wear 400

Image courtesy of Bloomingdale’s

“Discounting illustrates the schism between a luxury buyer and an affluent buyer,” Mr. Ramey said. “The one commonality amongst the affluent is they save money.”

Similarly, the Luxury Institute’s Milton Pedraza noted in an interview with Luxury Daily that consumers are less loyal today, and they can be wooed by a better offer from a competitor (see story).

Keeping up with competitors is often the motivation behind retailer pricing strategies.

Upstream Commerce noted in a holiday report last year that high-end retailers were trying to cut back on promotions, but the industry at large puts pressure on them to follow trends. For instance, a brand may be sold at both a promotion-heavy chain such as Macy’s and a luxury department store, requiring the upscale retailer to match Macy’s or be passed over (see story).

“I think the problem is that luxury brands, like so many others, remain fixed on the old 4Ps model of marketing – product, price, promotion, placement – when where they need to focus is on the 4Es – experience, exchange, everyplace and evangelism,” said Pam Danziger, president of Unity Marketing, Stephens, PA.

“Luxury brands shouldn’t and shouldn’t need to rely upon discounting to sell their stuff,” she said. “The fact that they do only testifies how out of touch they are with the consumers and how badly they have failed at marketing in new luxury style.”

Source: https://www.luxurydaily.com/should-luxury-retail-move-away-from-discounting/

 

 

Handbag makers cut back on new designs to reduce discounting

RetailDive
Daphne Howard
January 11, 2017

Dive Brief:

  • Several high-end handbag retailers are cutting back on the number of styles they’re introducing in an effort to reduce discounting, but experts told Bloomberg that could hurt some brands’ ability to spark sales.
  • Michael Kors Holdings cut back on the number of styles it introduced last quarter by 24%, Prada by 35%, LVMH’s Louis Vuitton by 35% and Burberry Group by 8%, according to data from fashion market research firm Edited cited by Bloomberg.
  • It’s a defensive position reflecting a “feeling of doom,” luxury consultant Milton Pedraza, a New York-based luxury consultant who runs the Luxury Institute, told Bloomberg. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

Dive Insight:

New styles are few and far between among the highest priced handbag makers, which are able to maintain full prices more consistently and see lower price cuts when they are discounted, according to a November analysis from Edited. “[T]hese brands introduce a few new styles every year and are able to replenish without discounting, Edited noted in a blog post. “To fully understand the marketplace it’s important to spend equal time looking at what’s coming into stores and what never stops being sold.”

While department stores are indeed using discounts to move handbags, the right timing for the introduction of new bags could help vendors avoid that, according to Edited. The highest number of discounts come in November and June, and discounted products sell out in the highest numbers in December, followed by January and July. That means that a month after reductions are applied, stock clears. Meanwhile, Edited found, full-priced sell outs are at their highest in December, followed — somewhat surprisingly — by January and February. But it’s March and October that are the big months for new product arriving into department stores.

Still, Bloomberg’s experts argue that the dearth of new styles could be due to personnel changes in the space. PVH Corp.’s Calvin Klein and Yves Saint Laurent replaced their creative directors, and Ralph Lauren CEO Stefan Larsson has shaken up management: Ralph Lauren’s son David Lauren came on as chief innovation officer in October, Coach CFO Jane Hamilton Nielsen arrived as CFO in June, and Bill Campbell, who most recently worked with Amazon in distribution, inventory and logistics roles for the past 11 years, was named corporate senior vice president of global supply chain and inventory management.

Younger consumers are helping push the “see now, wear now” trend into luxury and seem less enamored with the concept of an “it” bag. But that’s not necessarily pushing down prices of luxe bags, according to Edited. “Contrary to recent rumors, high end bags aren’t getting cheaper,” according to a blog post. “Instead, market data shows that retailers are upping the ante at the top end of the category’s price architecture. In the [the third quarter], 23% of all new arrivals at U.S. department stores were priced $1,800 or more. The same period in 2015 saw just 15.5% of all new arrivals priced accordingly.”

Source: http://www.retaildive.com/news/handbag-makers-cut-back-on-new-designs-to-reduce-discounting/433817/

Older Posts »