1. It's overexposed.
It's a classic tale: when a brand is overexposed it loses its level of luxury. After all, when everyone has the same bag, it no longer becomes covetable. Coach for awhile suffered from this problem, but it has been working for awhile to its luxury image.
"Much of this is related to the brand image of Michael Kors. It is somewhat brasher than that of Coach, which is viewed as more of a heritage brand, and I think this has negatively impacted its efforts to become less ubiquitous and turn around its image," Neil Saunders, CEO of consulting firm Conlumino wrote in an email to Business Insider.
Michael Kors has continued to expand, though much of the expansion (145 of the 221 stores), had to do "with the Company's recent acquisitions of Greater China and South Korea and the consolidation of the Latin American operations," as the company announced in its release. Still, total revenue in the Americas dipped 5%.
2. Outlets have killed its status.
It's tough to get consumers to pay a premium when they know they can get something on sale. Consider Gap's Banana Republic: everything's on sale, so why shop at a premium? It's common knowledge that once you start shopping for discounts, it's hard to not consider a brand to be a discount retailer.
Outlets are arguably a magnified version of this, only worse. If a brand becomes known as an "outlet" brand, how could it be considered luxurious?
But Michael Kors has a strategy to save itself: it announced on earnings call on Wednesday that it would be ending its participation in department store couponing and friends and family discounts.
"We think that this is critical for us to really do three things; number one, to protect our brand image," CEO John D. Idol said on a conference call with investors. "As you know, that channel has become very promotional and, in fact, is causing us difficulties in our own retail channel, which is why you see our gross margins declining because we're really trying to meet certain pricing that's happening to be competitive. And we don't think that's the right thing to do for our brand going forward."
"Secondarily, we think it's creating confusion in the consumers' mind relative to the value of the Michael Kors brand, when it's being seen so often on sale in so many different places," he said.
3. Teens reject name brands as status symbols.
Teens, also known as "Generation Z," don't necessary want expensive items — even if it's a gift.
"For Gen Z, gifting is an occasion that mirrors the more conservative behavior of Gen Z: they are practical, frugal, and prefer to blend in, not standing out with glitzy items," Nancy Nessel, Generation Z expert, wrote in an email to Business Insider. "Gen Z is very practical — financially and behaviorally — about how they attain, earn, save and spend their money, and this practical mentality applies to gifts. Gen Z is more likely to save their money, saving money gifts and earnings to put towards their savings for a car, or for college tuition."
4. Macy's is wrecking its reputation.
The handbag category as a whole has been struggling, largely because department stores have marred their reputations. They can't control how the brand looks in a department store (unless it's a licensed section, like an LVMH brand or a cosmetics brand). A brand also cannot control the promotions that department stores — like Macy's — while execute in order to bring in foot traffic.
"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," Gabriella Santaniello, analyst and founder of consulting firm A Line partners, told Business Insider recently.
(They also can't control if a Macy's location looks like a hot mess.)
"The wholesale numbers are to be expected. The department store channel is a mess and footfall is down strongly across most stores which puts real pressure on the sales of brands like [Michael Kors]," Saunders wrote in an email. "The excessive and constant discounting is also unhelpful as it dampens sales values but does nothing to increase volumes."
Further, the line between a brand's wholesale sector and its own retail sector can get quickly blurred.
Coach is trying to fix this by removing itself from 25% of its wholesale locations.
Department store foot traffic is also declining.
"It is also the case that declining department store traffic has not resulted in a flip to traffic at some of Michael Kors mall based stores, which is discouraging," Saunders wrote.