Michael Kors made one mistake that undermined its business
The company enjoyed an impressive rise in popularity in recent years thanks to its trendy handbags and watches. But growth has been slowing lately, and the company has reported a weak outlook for the future.
Shares are down 34% in the past year. Despite overall strength in the apparel industry, the fashion company is the only major specialty retailer no trading above the 5-year median right now, according to a recent report by Morgan Stanley.
Many of Michael Kors' issues can be traced to one mistake: rapid expansion.
The brand is now available in 4,133 locations around the world, including boutiques, department stores, and discount outlets. That compares with 2,913 stores at the beginning of 2013.
Michael Kors has said it could still add hundreds of locations to its roster.
While being available in more stores can drive profits in the short-term, it can also hurt the brand.
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 writes 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.
Michael Kors also has several brands at different price points, a strategy that could easily backfire, Lewis says. Kors has a high-end department-store brand, a middle-market brand, and a brand for discount outlet stores.
"Some would argue all of those segments will simply end up competing with each other, thus cannibalizing the top end of the spectrum," he writes.
In other words, consumers will not pay $300 for a Michael Kors bag in a department store when they can get one at the outlet mall for half the price
Coach's popularity also led to business struggles.