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Luxury retailers are facing a big dilemma—the sales and bargain culture of department stores is putting a dent in their sales.
Where once effective, now luxury brands find selling their products in department stores is diminishing the value of the brand, and retailers are noting a decline in traffic at their own upscale street locations in addition to department stores.
From Coach to Michael Kors, these four luxury brands are either decreasing their inventory at department stores or doing a mass exit.
Michael Kors
Michael Kors announced last week it will no longer participate in department stores’ friends and family sales, saying the rampant sales environment damages the brand image. The move comes after the luxury retailer reported a 7.4% slide in same-store sales.
The retailer has yet to pull out of department stores, as it has very high direct exposure to the wholesale channel among luxury retailers, with nearly 50% of its North American sales tied to department store sales.
Coach
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Earlier this month Coach said it will pull its purses and wallets out of 250—or 25%—of department stores that sell its goods.
The luxury retailer claims department store promotions are hurting its brand reputation and sinking its profits. Coach plans to spend more money remodeling its own shops and website so it can attract customers willing to pay a premium for its goods.
And it’s working. Products priced at more than $400 made up 40% of Coach’s sales in the most recent quarter, up from only 30% last year.
Ralph Lauren
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Ralph Lauren announced plans this month to cut more than 1,000 jobs and close 50 stores in an effort to “evolve” following missed sales targets for the year. The $7.2B retailer plans to restructure its model in an effort to grab more shoppers online.
In Q1 the retailer beat analyst estimates, but still experienced a 5% dip in wholesale (or department store) sales and a net loss of $22M compared to net income of $64M reported the year-ago quarter.
Like Coach, the retailer has been reworking its shops and website to attract customers willing to pay top dollar for its goods.
Vince
This NY-based retailer—up there with Prada and Burberry in terms of pricing—has been ramping up its brick-and-mortar locations since early last year, pulling away from the wholesale model it claims was failing to boost business.
In 2012, 85% of Vince's business was wholesale, and as of March 2015 that was cut by 10%. The brand has yet to announce Q2 earnings, but in the first quarter it brought in $67.6M in net sales, up 13% from Q1 2015.
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