Luxury handbag label Michael Kors sold 22 styles of handbags in the last quarter, its largest number of offerings ever. Saddlebags, mini bucket bags, and quilted bags were top-selling items. Even though Michael Kors handbags are popular, millennials have been embracing smaller and less expensive handbags, which has led to a decline in sales of more costly bags.
Although shares rose 8.3 percent on November 4, sales of handbags in department stores have been declining. Comparable sales at North American stores fell by 8.5 percent in the last quarter. That was not as bad as the drop in the previous quarter, but it was still the third straight quarter with a decrease. Michael Kors expects North American sales to decline again this quarter.
Inventory buildup was 13 percent higher at the end of the quarter than it was a year earlier and was much higher than total sales growth. The department store channel has become more promotional than Michael Kors would like, so the label has decided to distance itself from that.
Michael Kors plans to reduce its inventory so that its retail partners will not put its handbags on sale. In order to raise its profit margins, Michael Kors may also raise the prices of small leather goods.
Michael Kors has experienced growth in other categories, such as menswear and connected fashion accessories. The company launched its Duracell Powermat kit cell phone accessories last December.
Barclays predicts that sales of premium handbags and accessories will increase by 3 percent to $11.7 billion this year. That is much less than the growth of 8, 11, and 16 percent in the previous three years.
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