Women have abandoned a longtime wardrobe staple — and that's terrifying news for Michael Kors, Coach, and Kate Spade
In April, Elle writer Justine Harman spotted a classic, nylon box-shaped Kate Spade bag on eBay.
The bag, she noted, was knocked down from its original price of $250 to a staggeringly low $39.99. (That particular discounted bag has now been sold, but remaining "vintage" Kate Spade items are still marked down pretty low.)
While this discovery delighted some millennial women who grew up begging their parents for one of these handbags, others might have noticed that this dramatic price dip is indicative of something bigger: The designer handbag industry is losing its luster.
As with all trends, there's an ebb and flow. Not everything can stay relevant forever. Kate Spade has adjusted to a more colorful, bright, fun look, but the company's offshoots, Kate Spade Saturday, targeted towards millennials, and Jack Spade, which tapped into the men's industry, shuttered all their doors in the winter, The Wall Street Journal reported.
In April, Bloomberg noted that Michael Kors was the top handbag for teens, replacing Coach. Kate Spade was in third place.
But Michael Kors' sales growth has been eroding, and prospects do not look good for the brand.
The brand's inventory has risen, suggesting that the brand's products aren't flying off shelves.
FacebookMichael Kors rose to popularity because of its handbags.
It might be because the brand is too popular — or too widely purchased. This is in part due to the presence of outlets — which Michael Kors has aplenty — which can ultimately be brand killers. Outlets devalue a brand, encourage people to not buy at full price, and make luxury items too accessible.
Further, widespread popularity is the "kiss of death for trendy fashion brands, particularly those positioned in the up-market younger consumer sectors," industry expert Robin Lewis wrote on his blog. Lewis compares Michael Kors to Tommy Hilfiger, which reached its peak in the late 1990s.
Michael Kors is considered an aspirational brand, with consumers paying a premium for its label. Once everyone has the product, it is no longer considered cool.
Other brands that have experienced this phenomenon include Juicy Couture, Jordache, and Coach — which Michael Kors dethroned as the most popular high-end handbag brands for teens, as Bloomberg has reported.
But Coach's woes are undeniable. CNBC reported the bizarre disparity for Coach: Sales still dipped amid shares rising. On a recent earnings call, CEO Victor Luis attributed this to how the brand has been cutting back on flash sales.
Sweeping up shoe brand Stuart Weitzman at least helped slightly; "the acquisition of Stuart Weitzman in early May contributed $43 million to fourth-quarter and full-year revenue," CFO Jane Hamilton Nielsen said on the call.
But it might not just be handbags that are at a loss. This pattern is indicative of a much larger trend.
After all, millennials spend their money differently than the generations preceding them did. Old-school retailers like Gap have suffered compared to fast-fashion companies like Zara and H&M, which allure millennials with their quick turnaround and low-price. Traditional retail has been struggling as a result.
And those traditional retailers who attempt to cater to millennials instead of baby boomers or Gen Xers face huge possible risks: Millennials don't spend that much money as it is. Saddled with debt, this generation isn't spending money on luxury items. And by alienating consumers who do have money, retailers inadvertently put themselves in a precarious situation. Who will buy from them?
Hilary Stout illustrated this problem in The New York Times in June: "After all, the millennial generation has less wealth and more debt than other generations did at the same age, thanks to student loans and the lingering effects of the deep recession," she wrote.
And Forrester researchers highlighted in a study that baby boomers, between the ages of 51 and 69, are the "biggest spenders" because they have extra cash from decades of saving and investing — something millennials just can't afford.
Additionally, millennials are flat out not spending on apparel. A study by Morgan Stanley highlighted that millennials are instead choosing to spend money on expenses like rent, cellphones, and services.
Macy's CFO, Karen Hoguet, even blamed Netflix on the sales slumps. "I think part of that is the customers are buying other things, whether the electronics, cable services, Netflix, whatever," Hoguet said.
Ultimately, there's a limited market for selling clothing — let alone designer handbags.
The biggest threat to the industry could be "HENRYs" — a term luxury expert Pam Danziger coined, standing for "high earners not rich yet." These people make over $100,000, and, as she told Bloomberg, are "making very careful decisions" when it comes to spending. But because they're not picking up designer products, the luxury brands are feeling the burn.
"Today, those people feel decidedly middle class and not at all luxury class," Danziger told Marketplace.org.
Which begs the question — why buy luxury items? Especially when you can sweep your favorite items from the aughts on eBay for under $40.
Then again, while some of Kate Spade's bags are relics of the past on the internet, its more fashion-forward bags are thriving — proving that the handbag industry can, in fact, save itself from an ominous fate.
"In wholesale, our business was primarily driven by strong performance in handbags, with data showing a continuing increase in market share, representing a key opportunity for growth as we build on our still modest penetration of market share," CEO Craig Leavitt said on a recent earnings call for the company.