Michael Kors has changed its tune on wholesale retail.

Two years after CEO John Idol announced the brand would be reducing the amount of inventory it shipped to its retail partners and opting out of broad retailer promotional events, wholesale performance is turning around. The brand’s now-lightened inventory load at department stores like Macy’s and Nordstrom is selling out, frequently at full price, which has led to the brand shifting its seasonal shipment schedule to supply its partners with enough stock to meet demand.

The progress is reflected in the numbers: In the Michael Kors Holdings Limited first-quarter earnings for its financial 2019, wholesale revenue increased 19 percent, to $363 million. In August 2016, when the wholesale backlash began, wholesale revenue had dipped by 7 percent.

“Our full-price sell through has gotten better. We’ve controlled promotional cadence, and that trend feels good. The declines we saw previously are becoming mitigated, and we’re seeing reorders,” said Idol during the Wednesday earnings call with investors. “Wholesale feels good to us. Our desire was to have more scarcity of product to create more desirability, and that usually takes a year and a half or more to take hold, but we got there quicker in North America than we anticipated.”

In North America, Michael Kors reduced wholesale inventory shipments by 10 percent, and by a “high double-digit” amount in Europe, according to Idol. It stopped accepting coupons for brand purchases at department stores, in addition to pulling out of promotional events. Near-constant promotions prompted by dwindling department store foot traffic had diluted the brand’s worth, Idol said at the 2016 low point. The accessories category was at the core of the turnaround, with handbag promotions hitting their peak. As that’s been resolved, Idol said, there’s been a “brand halo” residual effect, with footwear and apparel sales increasing as the brand’s positioning improved. The only category to decline in sales was watches.

The move was part of a broader shift in fashion that saw other similarly positioned brands like Coach and Kate Space shrinking back from wholesale retail to favor direct sales. Even brands at luxury’s highest echelons are moving to a direct-retail strategy: Gucci wants wholesale revenue to diminish to less than 10 percent of the brand’s overall sales. In brands’ owned stores and e-commerce channels, not only do they have control over customer data capturing, storytelling and marketing efforts, and pricing and promotions, but also over merchandising and inventory display. Department stores today, on the other hand, are competing on curation, meaning they’ll edit down collections.

“Department stores, for a lot of today’s customers, have too much inventory,” said Jane Halli, a retail analyst at her firm Jane Halli and Associates and a former buyer. “All of them need to edit their assortment — it’s the only way to differentiate themselves at this point.”

As Michael Kors sees its wholesale business right ship, both in stores and online, its direct retail channels are slower-growing, up 3 percent to $640 million for the quarter. (Michael Kors doesn’t break out e-commerce revenue from in-store revenue.) To improve direct sales, as part of its ongoing Runway 2020 restructuring plan, the brand has been investing in store renovations that include a new inventory strategy, a VIP loyalty program and limited-edition capsule collection drops between main fashion seasons. In the renovated stores, Idol said, there’s been tangible progress. After expanding the categories and products carried in stores, and adding newness more often, customers are making repeat purchases and spending more per visit overall.

“The days where you could only have basic products in your store are over. She wants novelty, innovation and differentiation,” said Idol. “We are ahead of where I thought we would be.”

The company is looking to its two luxury plays, footwear brand Jimmy Choo and Michael Kors Collection, to drive more customers directly to the brand. Idol said there’s an opportunity to open Collection stores in the future, and Jimmy Choo, which exceeded results expectations and accounted for $172 million in revenue for the quarter, hasn’t faced similar brand damage to Michael Kors.

“We were candid. We said that we didn’t think our product innovation and some of our new launches were compelling enough for the consumers that it created desirability,” said Idol. “We feel much better about where we are now.”

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