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Michael Kors Sees Promising Results From Early Turnaround Efforts

Michael Kors

While the industry waits to see what Michael Kors’ planned acquisition of Jimmy Choo means for that organization, and the industry at large, the company is undertaking a turnaround of its flagship brands.

The Choo purchase is the first step in Kors’ plan to create a “global fashion luxury group” that leads with fashion authority, craftsmanship and heritage.

Michael Kors plan for Choo is to operate it as a separate business, one it expects to reach $1 billion in revenue. To reach that goal, the company will bolster its online presence, expand its retail footprint globally and boost the accessories and men’s categories.

The strategy for the Kors business, dubbed Runway 2020, includes an overhaul of almost every facet of the operations and product as Kors attempts to better control its distribution, reduce markdowns and excite customers. It was a strategy that proved successful for rival Coach. The only questions is, can Kors execute as well?

CEO and Chairman John Idol said the most promising thing to come out of the company’s second quarter was the increase in AUR, or average unit retail. He credits the higher AURs to Kors’ new promotional policy, which limits the timing and frequency with which items are put on sale. AUR also saw improvement thanks to the company’s new layered pricing, which will roll out to more product categories next year. To test it, Kors priced several groups at price points it felt would sell at full price, and the strategy paid off in terms of improved gross margin and sell-throughs.

“We really have shown, if it’s the right product, you don’t need to have aggressive markdowns at retail,” Idol said, during Kors’ earnings call this week.

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Kors is also testing some higher priced goods like its Bancroft handbag, which hovers around $1,000. Idol said shoppers haven’t experienced sticker shock—just the opposite. “We’re seeing tremendous sell-throughs on Bancroft… It’s shown us the power of the brand, and the customer’s desire when the product is right,” he said adding, the success has underscored the company’s mission to offer more craftsmanship.

The company plans to add more higher priced items going forward, which it thinks will retail so long as the fashion quotient is correct and evident to the consumer. “We’re working with [the design teams] on innovative materials and workmanship because the customer wants that,” Idol said, adding customizable attributes will also play a big part. “They want something that looks different for them and look diff for their wardrobe.”

Starting next season, Kors is planning to amp up excitement by using a little restraint. “We’re going to put 100s of millions of dollars less product in the market for Michael Kors handbags,” Idol said. “That is going to create a bit more scarcity. And we believe a bit more desire.”

[Read about the industry’s take on the plan to build a multi-brand platform: Can Coach and Michael Kors Usher in the Rise of the American Fashion Conglomerate?]

Spring 2018 will be big for Kors since it will be the first season in which many of its new initiatives will be on full display, including between 65 and 70 percent newness on the floor across direct to consumer and wholesale.

Idol is pleased with the direction women’s is headed with comps up in ready to wear in Kors stores, fashion active shoes still going strong and watch sales improving—with hopes of better performance once the company’s smart watch collaboration with Google hits stores this fall.

Kors is expecting men’s to be a strong business going forward as well based on the strong comp store sales the category is achieving currently.

“The response to what [our customers] have seen in our showrooms is quite strong and I think they’re feeling good about our plan to reduce promotional activity to bring a greater scarcity level of product, particularly in North American markets, and get AURs up and full price selling,” Idol said.

For Idol, everything is indicating that the turnaround strategy is on track. He said despite continued lackluster traffic patterns in stores, conversions are up, showing the consumer is liking what she sees. “We’re seeing business improve in North America. That’s a combination of the product we’re delivering getting better and the customer responding. There’s definitely a slightly better feeling for the customers in our stores being more optimistic and excited about fashion and innovation.”