Just two weeks after announcing its acquisition of Jimmy Choo, Michael Kors reported quarterly sales that indicate its revitalization efforts may be making a positive, if modest, impact.
Second-quarter sales dipped less than anticipated, with same-store sales falling 5.9 percent, compared to the expected 8.9 percent. Additionally, total revenue decreased by 3.6 percent to a total of $952.4 million, still outpacing industry estimates of $918.6 million. For the beleaguered brand, this is no accident, as the company has dedicated the past several months to combating slumping sales with the help of its Runway 2020 program, an extensive rejuvenation plan announced earlier this year.
The long-term restructuring plan lays out an array of prioritizes, including diversifying its product mix by expanding categories in footwear, ready-to-wear, menswear, watches and smartwatches. It also lists initiatives around refreshed marketing communications, product personalization, a revamped consumer loyalty program and a more refined focus on digital flagships and improving the in-store experience. A major tenet of the program is scaling back on handbag products and reducing discounting by 40 percent, following rampant department store sales that ultimately diluted the brand.
Taking a page from rival brand Coach, which has seen this strategy pay off, Michael Kors also announced plans to shutter 125 stores in the attempt to focus on improving the quality at fewer brick and mortar locations.
During a call with investors Tuesday morning, CEO John Idol said the introduction of new high-end products this fall — including the Bancroft bag, which retails for upwards of $1,900 — will continue to help Michael Kors build luxury cachet.
“It is still early in the process, but we have certainly begun to lay the foundation for future success. While we recognize that it will take time for our initiatives to bear fruit and meaningfully benefit our financial results, it is encouraging that we have already seen early signs that our efforts are resonating with our consumers,” he said during the call.
By increasing higher cost products while slashing the number of cheaper models on the market, Michael Kors is making a play for scarcity that is vital to defining a luxury brand, Neil Saunders, managing director of research firm GlobalData Retail, wrote in a statement. Transformation itself is costly, not just in spending on new efforts and projects, but also — in Michael Kors’s case — in reducing inventory and pulling products from major department stores.
“This is a necessary evil, as Michael Kors withdraws from channels and retailers that no longer fit with its brand strategy,” Saunders wrote. “In essence, reducing ubiquity comes with a price attached.”
Saunders said that while ultimately declining sales are never an indicator of flourishing business, the improvement foretells the efficacy of the brand’s efforts, and may point to a continued upward trajectory.
“While this is not exactly a glittering set of results from Michael Kors, compared to last quarter’s incredibly dismal performance, the numbers are something of a step forward,” he wrote. “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.”
The impact of Jimmy Choo will also be telling for Michael Kors’s transformation efforts. William Sussman, analyst at Threadstone Advisors, told Glossy in July that Jimmy Choo will likely help the company regain some of the luxury luster it lost through extensive discounting in the past.
“Acquiring a second major brand, one with a different entry price point, affords Michael Kors the ability to leverage all aspects of the business,” he said.