(Getty) 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 companies' cheaper outlet
stores instead of buying full-price items at department stores.
Wedbush
Securities analysts wrote in a note earlier this week that Michael Kors
was the worst off 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 need look only to Macy's,
which has grappled with tumbling sales and excessive promotions.
Macy's separately struggles from its loss of premiere positioning.
(The Michael Kors handbag section in Macy's in Herald Square seen in May.Mallory Schlossberg/Business Insider)
"It's
promotional environment, and I think that's the problem," Gabriella
Santaniello, an analyst who founded the 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 had "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 the fiscal fourth quarter. Wedbush says
there's a risk for the brand, "given a broadly promotional environment
across the outlet channel throughout the quarter." Coach reports
earnings on Monday.
Though Kate Spade saw its earnings tank amid a drop in tourist traffic,
Wedbush wrote in a note last 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 was 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 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 Macy's and Nordstrom saw a "deceleration in the handbag category" in a report last quarter.
Handbags
remain such an uncertain category because it's one of the few sectors
that will not be subject to weather, Santaniello pointed out.
Whether or not consumers — especially fickle young shoppers who don't care for tangible goods but rather prefer to spend their hard-earned dollars on experiences — care for handbags is up for debate; what seems reasonable to wager is that overexposure can tarnish a brand and, as malls nix department stores for new, "experiential" anchors, that department stores are struggling, and it's certainly not helping the handbag category.
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