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Michael Kors May Be Out-Of-Fashion. Is There Any Way This High-End Brand Can Recover Its Spark?

By Toni Matthews
Published on: 14:08 PST, Oct 15, 2014

For aspiring fashionistas, Michael Kors may be a name they begin to avoid during future seasons.

This would no doubt be terrible news for Kors, which reportedly expanded from 100 stores to 400 within the past three and a half years.

If interest in the brand has truly begun to trend down, that could mean the company is in for serious economic strain.

Those who claim that Michael may no longer be a hot commodity point toward the noticeable slowdown in Michael Kors Holdings (NYSE:KORS) growth spurt.

Shares for Michael Kors Holding finished at $72.15 on Tuesday, suffering a 0.1 percent loss. The company’s shares have reportedly dropped 11 percent so far this year.

There are a few major issues driving the stagnation of Michael Kors’s company as Stifel Financial’s David Schick pointed out:

Our READ survey suggests more stagnant demand, lately, of higher income consumer mindshare (relative to peers).

We believe the probability of multiple expansion is limited as ROIC is likely to fall … due to reinvestment in brand (marketing and capital investments) along with natural slowing comp.

This may be bad news for now, but Schick is positive that Michael Kors has the ability to reverse troubling trends.

Management has indicated a number of opportunities for further growth, including men’s, ready-to-wear, jewelry, watches, sunglasses, and international, among others.

Even if there are options that will allow Michael’s business to avoid a complete downward spiral, that doesn’t automatically signal that climbing back up will be easy.

For one thing as Michael Kors brand becomes more popular with mainstream middle-class consumers, it loses its “exclusive” factor among richer customers.

The good news is that exclusivity aside, there is a greater number of customers available who would be attracted to Michael Kors products. Though traditionally high end, these fashion items tend to be FAR more affordable than certain other “blue chip” companies.

The challenge will be to lure customers away from top competitors.

Some name brand accessories that Kors is hoping to outperform include Kate Spade & Co. (KATE) and Coach (COH).

Coach is also experiencing something of an ongoing slump.

Despite rising 4.43 percent to $35.62 on Tuesday, Coach has seen its shares drop 40 percent within the past year.

Like Michael Kors, Coach’s investors are hoping for a turnaround. Of the two, Kors seems to be the company that has less catching up to do.

Of the three, Kate Spade seems to be enjoying the greatest fortunes as of late.

The company reported a 1.23 percent increase to $27.51. In addition, Kate Spade’s gross profit margin has risen by 58.61 percent.

One area of concern is short-term cash problems.

So who is most likely to come out on top?

Michael Kors enjoys a higher share value and strong high end name recognition. This award-winning company has remained in the game for over three decades.

Things may appear dull for the moment, but Michael Kors is hoping that its ability to stick with current trends will help it survive present disappointments and regain its status.

[Image via Mike Mozart]

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