Michael Kors and the Future of Affordable Luxury Accessories

Michael Kors Holdings Ltd is a US-based, luxury-positioned fashion company established in 1981 by American designer Michael Kors. The company produces ready-to-wear clothes, but is best known for its personal accessories, in particular its handbags. Within personal accessories, bags and luggage generated 99% of 2016 values; handbags generated 59%. The company is predominantly focused on its North American market, where, including Latin America, it has 398 retail stores. In addition, it is further developing its e-commerce strategy in the US and Canada. However, Michael Kors also plans to launch e-commerce sites in South Korea, as well as in additional European countries.

SWOT: Michael Kors Holdings Ltd

Michael Kors SWOT analysis. Strengths: Global prestige and branding strategy. Weaknesses: US overexposure, lack of product diversity. Opportunities: new product lines, consolidated luxury group. Threats: promotional environment, different brand perceptions

Source: Euromonitor International

Focused competition in US leaves room to grow in other markets

Coach Inc was Michael Kors Holdings Ltd’s primary competitor in 2016, with a market overlap of USD2.7 billion and 46 common markets. The US is where these two players have a fiercer rivalry. Coach is moving closer and slowly regaining share due to a strong marketing strategy. Competitors such as Kate Spade & Co Inc, Kering SA and VF Corp are increasing sales and closing on Michael Kors, as these players start to be present in similar markets with similar products to Michael Kors. Particularly Kate Spade is connecting with Millennial consumers with pop-inspired collections.

Jimmy Choo acquisition will complete group product offer

In November 2017, Michael Kors Holdings Ltd completed its acquisition of Jimmy Choo. This agreement will bring together two iconic brands that are industry leaders in handbags and footwear, respectively. Jimmy Choo has a rich history as a luxury brand – specialist shoemaker – with a 20- year track record of enduring customer appeal. This acquisition will allow Michael Kors to better compete in categories such as footwear, where rival Kering SA is currently enjoying better performance. In addition, Michael Kors will gain footwear know-how, in case the brand wants to further develop its footwear line.

US dependence weighing down Michael Kors

Unlike many global luxury brands that focused on building their retail footprint in emerging markets over the review period (especially in Asia Pacific), Michael Kors concentrated on its domestic US market, eating into the share of competitors such as Coach and Kate Spade. However, forecast growth in Asia Pacific is expected to be one percentage point over North America, mainly due to China and India. Disposable income has seen 10% and 11% growth in China and India, respectively, over the review period. This fact, along with more Western influence from large advertising campaigns, encourages consumers to buy affordable luxury handbags.

Other regions such as Eastern Europe will see similar growth over the forecast period, reflecting better economic prospects. This region saw 5% growth in consumer expenditure and disposable income over the review period, and represents an opportunity area and provides good momentum to start increasing brand awareness and value sales, both online and offline. Latin America, with an expected 1% CAGR over the forecast period (similar to Western Europe) represents a good opportunity for Michael Kors to increase its share in some of this region’s countries such as Brazil, where handbags is predicted a 1.4% CAGR up to 2022.

International expansion

Asia Pacific has been the region with the highest increase in retail value sales as the company is implementing its expansion strategy in this region. FY2017 Asia Pacific retail value sales reached 9% of total Michael Kors Holdings Ltd value sales. In FY2017 and following years, the group will continue to expand internationally through acquisition of its geographic licensees in the Greater China region, including China, Hong Kong, Macau and Taiwan, as well as growing its recently-acquired business in South Korea.

In North America, sales represent four points less than in the previous FY. Clearly, the brand faces some challenges in rebuilding its reputation and long-term growth in the US. The company has plans to expand its men’s accessories. This could help Michael Kors recruit new US consumers.

Michael Kors Future

The company’s strong brand equity, particularly in handbags, gives them a holding in developed markets to grow. While the brand is strong, Michael Kors has eroded it a bit by sustained discounting and outlet stores in response to other affordable luxury brands. This is nudging the brand towards the mass end of the market, where consumer loyalty is weaker and price pressure higher. Rebuilding price positions and recovering brand equity should be a priority. Focusing on full price stores, will allow the company to have a total control over the price positioning and therefore over the consumer brand perception.