Post by The Big Daddy C-Master on Aug 8, 2016 4:21:49 GMT -5
finance.yahoo.com/news/americans-abandoning-longtime-status-symbol-224700371.html
American department stores are in trouble.
Both Macy's and Nordstrom reported sales declines in their most recent quarters. Many analysts expect more bad news when the companies report earnings this month.
But one category that has been suffering amid department stores' struggles is the designer handbag, which has long been a status symbol for American women.
Key handbag brands — like Michael Kors, Coach, and Kate Spade — have been hurting recently as consumers shop at the company's cheaper outlet stores instead of buying full-price at department stores.
Wedbush Securities analysts wrote in a note earlier this week that Michael Kors is in the worst situation out of the three major accessible luxury brands, all of which are somewhat affected by the troubles in department stores.
"It has the highest direct exposure to the wholesale channel (nearly 50% of its North American sales), but beyond channel exposure, higher promotions at department stores and a slowing of the category in general also led to sluggish sales and increased discounting at retail locations, particularly at [Michael Kors]," the analysts wrote.
To get confirmation about this statement, one only has to look to Macy's, which has grappled with tumbling sales and excessive promotions.
Macy's separately struggles from its loss of premiere positioning.
"It's promotional environment, and I think that's the problem," Gabriella Santaniello, analyst and founder of consulting firm A Line Partners, told Business Insider. "The problem with these three brands in particular is there's a difference between the department store distribution and the retail distribution, and unfortunately there's some overlap in the handbags and the assortment between retail and wholesale, and with that, when you're in wholesale there's a lack of control in their brand, and ultimately the department store is going to do what they have to do to drive sales — and that includes promotional activity."
Coach is faring better than its competitors. It has been in the midst of a turnaround while it has tried to undo its tarnished reputation. Santaniello noted that the company has "done an excellent job of differentiating [between] wholesale and retail."
Wedbush writes that it "seems well positioned to deliver on its long-targeted return to positive comps in fiscal [fourth quarter]." Wedbush notes that there's a risk for the brand, "given a broadly promotional environment across the outlet channel throughout the quarter." Coach reports earnings on August 8.
Though Kate Spade saw its earnings tank due to a drop it tourist traffic, Wedbush wrote in a note earlier this week that it was underexposed, at least, relatively to Michael Kors and Coach — which should have positioned it to outshine its competitors.
But in a note following earnings, Eric Beder of Wunderlich Securities noted that, like its competitors, it is subject to the rampant discounting that has proliferated in the industry.
Santaniello also pointed to the fact that its recent novelty handbags didn't resonate in the way that last year's collection did.
Of course, the ups and downs of handbags have been ongoing; the handbag category has been subject to the capricious nature of retail. In November, Goldman Sachs said that the category was "falling flat" with teen girls. But by as soon as March,Wells Fargo analysts were saying that consumers were becoming enamored with the category again. And Morgan Stanley highlighted how both of Macy's and Nordstrom saw a "deceleration in the handbag category" in a report last quarter.
