You're Buying So Many Bags That Brands Are Cutting Back On Promos

[Echoes]

(Reuters) - Holiday-season splurging on handbags has given Coach Inc (COH.N) and Kate Spade & Co (KATE.N) new impetus to cut back on promotions, confident that Americans are more willing to splash out on luxury.

Kate Spade announced plans to discontinue its low-margin brand while Coach, its larger competitor, surprised Wall Street by revealing an increase in demand for its high-end handbags.

Shares of both companies rose by more than 9 percent.

Low gasoline prices and a brighter job market has persuaded many consumers to dig a little deeper into their pockets. U.S. consumer confidence is at its highest in more than seven years, according to a report released this week.

"We're encouraged by the green shoots we are seeing in our business," Coach Chief Executive Victor Luis said in a statement announcing December quarter earnings.

Coach, founded in 1941 in a Manhattan loft, said sales in North America were 24 percent greater than in the preceding quarter. Handbags account for more than half of these sales.

Significantly, handbags costing more than $400 accounted for about 30 percent of the company's total handbag sales during the quarter, up from about 20 percent a year earlier.

Still, the results were far from stellar: year-on-year, Coach still posted its sixth consecutive quarterly decline in sales. The company itself said its sales this year would be "pressured" by the cutback in promotions.

But, JP Morgan analysts cited improved assortments and the remodeling of stores as signs that the company's strategy is sound.

Kate Spade was bolder, forecasting a 20 percent jump in 2015 sales, excluding items. The company is bidding farewell to its lower-margin Kate Spade Saturday brand.

The company, founded in 1993 by designer Kate Spade, a former accessories editor at Mademoiselle magazine, estimated its full-year 2014 sales had jumped 40 percent.

"What's encouraging is that we just saw them (Kate Spade) successfully sell products while pulling back promotions, in a holiday period when everyone has been calling out promotions," Nomura Equity Research analyst Simeon Siegel said.

Michael Kors Holdings Ltd (KORS.N), seen by many as the pre-eminent brand in affordable luxury, is set to report quarterly results on Feb. 5. Its market value has already eclipsed that of Coach, a brand that has been around for much longer.

http://www.reuters.com/article/2015/01/29/us-coach-results-idUSKBN0L22EV20150129

 

[Mariapia]

When the sales started in France, I thought that the handbags I had planned on buying a few weeks before would cost me at least 50% less during the sales period .
It didn't work that way.
When I asked 3 or 4 shop owners why I could only get 20 or 30% off compared to last year's 50, they all replied that they had sold many more bags in 2014 than ever before.. hence fewer promotions....

 

[Fimpagebag]

I believe the most glaring omission in these business models is that many of the younger generation are far more likely to direct their discretionary spending towards the latest technologies rather than bags. Many of the students at the college where I work carry their iPhones in their hand and the rest of their essentials in backpacks or inexpensive fabric totes.

 

[papertiger]

I just quickly have to comment.

I think the withdrawal of many promotions are companies realising a) it's a catch 22 i.e. people who may have well bought at full price wait for sales and promotions or don't buy at all being put off by the cheapening of the practice. b) 2 HUGE players in the market have sustained growth by not have sales (of bags) i.e. LV and H.

 

[Fimpagebag]

I just quickly have to comment.

I think the withdrawal of many promotions are companies realising a) it's a catch 22 i.e. people who may have well bought at full price wait for sales and promotions or don't buy at all being put off by the cheapening of the practice. b) 2 HUGE players in the market have sustained growth by not have sales (of bags) i.e. LV and H.

Your expertise is, as always, greatly appreciated, papertiger. I only wonder if contemporary designers can be as successful as the premier design houses with this strategy?

 

[averagejoe]

And then there are brands like Mulberry that raised prices and lost sales. The article certainly oversimplified this strategy in order to sensationalize the story.

It's not so much that prices are raised because people are willing to buy higher-priced bags, but raising prices elevates profit margins (makes shareholders happy) and elevates the brand's status. It doesn't always work. Some brands end up proving how they are not desirable enough to actually push higher-priced merchandise.

 

[HesitantShopper]

And then there are brands like Mulberry that raised prices and lost sales. The article certainly oversimplified this strategy in order to sensationalize the story.

It's not so much that prices are raised because people are willing to buy higher-priced bags, but raising prices elevates profit margins (makes shareholders happy) and elevates the brand's status. It doesn't always work. Some brands end up proving how they are not desirable enough to actually push higher-priced merchandise.

Good point!