Why Michael Kors Is Making a Mistake Expanding its Menswear Business
Michael Kors had a blowout third quarter of fiscal 2014. In fact, the company has topped the Street view every single quarter since it went public. Not without a reason. The king of practical luxury is not just a fashion guru, but he is also a strategic genius.
When his peers were targeting a niche, high-end clientele, he went against the grain by launching a lower-priced line and wholesaling to department stores around the country. And in a fashion industry that worships all things skinny, Kors made a difference by tapping into the challenging plus-size space.
Now, the fashion powerhouse is making a significant push in the men's business. As the Wall Street Journal reported, the company plans to focus on men's clothing and accessories in earnest over the next two years.
But why make this business move now, 12 years after the designer's full menswear collection hit stores for the first time? More importantly, will this move bear fruit?
Capitalizing on the renewed menswear market
Women's handbags and watches have long been Michael Kors' bread and butter, but this market is getting more and more crowded. At the same time, industry experts are speaking of a "renaissance" in the men's apparel and accessories market. Apparently, a funny thing happened on the way out of the recession: men began investing in fashion.
Jesse Thorn, founder of men's fashion podcast Put This On, told the Pacific Standard that the recent recession has had a huge impact on how men view style. The post-boomer generation's acceptance of stylish dressing along with consumers' post-recession refocusing on craftsmanship - a value that has been traditionally thought of as masculine - are creating enormous business opportunities.Research firm MarketLine says that the global market for menswear is expected to exceed $430 billion by 2016, an increase of nearly 14% since 2011.
Michael Kors is taking notice of that "renaissance." And he's not the only one.
The fashion world is buzzing with rumors that Tory Burch could launch a men's clothing line as soon as next year, especially after the designer coaxed away Coach's creative director of men's design, Jeffrey Uhl.
With women's bag sales going downhill and a dwindling "cool factor," male shoppers offer a glimmer of hope for struggling Coach. CEO Victor Luis mentioned during the latest earnings call that the company's global menswear division is booming, expecting it to post $700 million in sales this year - up about 20% from last year. Going forward, Coach seems very keen on taking its men's business to the next level by investing in new stand-alone and dual-gender stores.
Louis Vitton is also caught up in this whole "woo gentlemen" frenzy. Last year, it bought cashmere clothier Loro Piana, a brand that derives half of its revenue from male customers, and is spending over $100 million to turn luxury men's shoe maker Berluti into a full clothing and accessories house.
Can Michael Kors resonate with male consumers?
When it comes to mixing glamor with comfort, Michael Kors is the man for the job - something ladies across the world love about him. But does he know what gentlemen want?
In 2003, he won the CFDA Vogue fashion fund for menswear, one of the most prestigious awards bestowed on emerging designers. So he knows a thing or two about men's fashion. Even so, Michael Kors launched his first full men's line over a decade ago and the men's business has yet to take off sales-wise. According to Wells Fargo Securities analyst Paul Lejuez, it represents less than 5% of total revenue. That's probably because, up until now, Michael Kors hasn't spent much time and effort developing and marketing its men's offerings.
But the big question is whether the brand will resonate with the new and rejuvenated male consumer. In the past, his menswear collections have been criticized as suitable only for mid-winter, narrowing the choices for shoppers, or even being too "fashion-forward." In the early '90s, he attempted to combine classic men's briefs with shirts, sweatshirts, and T-shirts and ended up designing bodysuits for men, an ill-fated concept that Michael Kors thought at the time was a brilliant idea.
His most recent men's collection showcases - among other looks - laid-back, drawstring trousers and tailored jackets softened into something more like pajamas. All of the outfits are finished off with sandals, worn with socks. Could this be another "brilliant idea"?
Play the cards right
Michael Kors took more-established women's categories by storm and put the likes of Coach to shame. "I know what women look good in. I don't think the rules ever change," he has said.
So why not stick to what he knows and does best, at least for now? Coach is going "all-in" with its men's business because it's looking for ways to offset declining sales in the women's department. That's not the case for Kors.
While his major competitors are busy experimenting with tailored pants and cravats, the designer could go against the grain once again by trying to grab what market share is left for him to grab in the women's clothing and accessories arena. After all, there's still room to gallop since increasing consumer confidence will keep driving growth. In addition, Kors can continue to court China, which, as MarketLine predicts, will become the world leader in womenswear with the market value reaching $72 billion this year.
The company has expanded rapidly over a short period of time. Its women's business is still undergoing international expansion. At the moment, getting wrapped up with the menswear market entails certain risks since it appears to be a whole new market, redefined by the post-recession, fashion-conscious male customer. Design "rules" as well as consumer patterns in this space are mutable. Any failure to lure male consumers could result in a strain on existing resources, making it difficult for the company to keep up with expanding operations proportionately.
In today's brave new world of "man bags," men seem willing to spend more on trendy clothes and voguish shoes than women do. However, for women, one handbag is never enough. For men, one or two suits might do the trick for years.
What might look like a huge opportunity for Michael Kors today could prove to be nothing but a trap.
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The article Why Michael Kors Is Making a Mistake Expanding its Menswear Business originally appeared on Fool.com.Fani Kelesidou has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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