Michael Kors is in danger of getting 'lost in a sea of 'stuff'"

  • Michael Kors shares tanked on Wednesday morning after the retailer reported worse-than-expected  earnings results for the second quarter.
  • Same-store sales dropped 2.1% at its namesake brand, mostly due to a decline in the European market.
  • GlobalData Retail's Neil Saunders says that Michael Kors is suffering from a brand image problem. By appearing on the racks of TJ Maxx or being heavily discounted at department stores, it is losing its status as an aspirational label. 

Michael Kors shares tanked early Wednesday morning after the retailer reported worse-than-expected earnings results for the second quarter. 

Same-store sales dropped 2.1% at its namesake brand. Meanwhile, sales at Jimmy Choo — the luxury footwear brand that it acquired last November — were stronger than expected. 

"After slowly climbing the steep hill of recovery, Michael Kors now appears to be rolling back down in reverse," Neil Saunders, managing director of GlobalData Retail, wrote in a note to clients on Wednesday.

Saunders attributed Michael Kors' woes to a brand image problem.

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Mattress Firm filed for bankruptcy in October.

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Sears filed for bankruptcy in October.

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"It still suffers from a lack of definition and a reputation tarnished by years of ubiquity," he wrote.

"While there is nothing wrong with a luxury brand being edgy or even gaudy, we would argue that there is a subtle distinction between this and being seen as lowbrow — and unfortunately for MichaelKors, it falls squarely into the latter camp. This is a shame as some parts of the range are appealing, but these gems get lost in a sea of 'stuff.'"

While Michael Kors has been trying to reposition itself as a high-end retailer and making the brand less available to the mass market by reducing its promotions, as long as its products continue to line the racks of discounters like TJ Maxx, it's unlikely to be seen as a luxurious brand.

Saunders said that Michael Kors also suffers from having a number of different labels at different price points, which all fall under one brand. 

It's "difficult to justify a $2,450 MichaelKors Collection handbag when a Michael by MichaelKors clutch bag is available in Macy's Last Act clearance section for a little under $51," he wrote. 

Michael Kors' earnings results stand in stark contrast to Tapestry-owned brand Coach, which is one of its leading competitors and has been executing a successful turnaround effort to reclaim its luxury status. Same-store sales were up 4% at Coach in the most recent quarter.

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SEE ALSO: Luxury brands are cleaning up their image — and it could be bad news for TJ Maxx

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