Michael Kors smart not to cave on price

The pandemic has battered the apparel and accessories business more than just about any other retail category. New clothes and bold fashion statements just aren’t as much of a priority now. But whatever desperation some of the giants in this area might be feeling in this moment, they are making a surprising choice: not chasing shoppers with heavy discounting.
Capri Holdings Ltd, corporate parent of Michael Kors, Jimmy Choo and Versace, said that its revenue sank 23% from a year earlier in the second quarter. While vastly better than the 66.5% sales decline in the previous quarter, the drop still shows the company is a long way from its pre-Covid normal. At the same time, though, its adjusted gross margin improved significantly on a higher average price per unit sold, helping the company beat analysts’ earnings expectations.
There were several reasons for the beat. One has to do with a quirky shift in consumer needs born of the pandemic: After years of tiny crossbody bags ruling the handbag world, sales of big purses and totes are making a comeback, something CEO John Idol says reflects life in the Covid-19 era. With so much gear to carry around — gloves, sanitiser and so on — a pint-sized purse made to carry little more than a smartphone just doesn’t cut it. Bigger bags, logically, tend to carry bigger price tags. Importantly, though, the company also achieved a higher average price per item because it decided to sell more goods at full price and even raised initial price tags in some cases.
Capri is not alone. Tapestry Inc, the company behind Coach and Kate Spade, reported that its average price per item increased in the latest quarter as it stuck to full-price selling, contributing to sharp improvement in gross margin from a year earlier. Ralph Lauren reported a similar story, with an average price per unit up 26% in the most recent quarter, also helping drive gross margin expansion.
These upscale brands are likely making the right call by sticking to their guns on pricing. Each has been on a years-long journey to solve the problem of overexposure, using various tactics to try to regain their cachet by becoming less ubiquitous but more luxurious. All have retreated from lackluster department stores. Ralph Lauren has been holding fewer promotional events on its websites, while Michael Kors is shrinking its lineup of brick-and-mortar stores.
To blast the promotional confetti cannon now would undermine all that work. Idol, the Capri CEO, said at
a recent conference, “We don’t run brands. We run luxury houses.” If he wants that to be true, he — and his accessible luxury peers — have to remain steadfast on their attitude towards discounting.
What I also suspect may be in play is that with so many shoppers stuck at home these days and having fewer occasions to use a new handbag, the mix and motives of women buying these accessories is likely slightly different than usual. If you’re springing for a bag now, it’s probably one that is something of a collector’s item, something you perceive as timeless that you can use years from now. That’s exactly the kind of purchase for which someone is willing to pay full price.
Avoiding discounting does have risks, especially in this unique period of pandemic living.

—Bloomberg