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Michael Kors sharpens its department store strategy

If you are a shopper who likes buying Michael Kors handbags on sale at department stores, you are going to be out of luck soon.

On its fourth-quarter earnings conference call, Michael Kors executives laid out a strategy to cut back on the number of products it sells to wholesalers, or retailers that sell many other brands, to better control pricing and protect brand image.

"We have built a very solid business with department stores, not only domestically but internationally. We think the channel is a very strong channel, across the world, great banners that we operate our brand inside of, and we support them 100 percent in good times and in difficult times," said CEO John Idol.

"That being said, what has happened in North America, in particular, and you are starting to see a little bit of it in Europe, is that as mall traffic has declined, stores have taken an aggressive position on promotional activity to generate volume and traffic into their buildings," he said. "And we have seen that, magnified, over the last 12 months. And we believe that — that long-term — that is not healthy for the Michael Kors brand."

A general view outside of a Michael Kors location
Christopher Jue | Michael Kors | Getty Images
A general view outside of a Michael Kors location

Idol and Michael Kors CFO Joe Parsons told analysts and investors that pulling back on the number of products it sends to its department store partners will ultimately make the brand stronger.

"Reducing the amount going into the wholesale channel will actually create a healthier environment for our department store customers and partners, and ourselves. There will be less product, more demand, and that demand will be more at full price versus sale," Idol said.

Competitors including Coach and Kate Spade have also been working at culling promotions to preserve profit margins and brand image. For higher-end brands, deep discounting dents brand equity, so analysts and investors have been rewarding the short-term pain for long-term gain that goes with moving back toward full-price selling.


Parsons noted that Kors expects wholesale sales to decline in the high-teen percentage range.

Idol also took a shot back at some of the discussion suggesting that the Kors' brand is losing its luster.

"Our customer continues to respond to the brand. I see constant communication from various press-related things about you know, the brand is dead, or losing its vibrancy, etc., and that's just flat out not true," he said.

Last week, a note from Wedbush Securities analyst Lupine Skelly said her team spoke to 112 Nordstrom handbag managers at 54 stores who claimed they stopped carrying the MICHAEL Michael Kors handbags in May. The Wedbush note also said other Nordstrom stores said that line would be eliminated by the end of June because of waning interest from customers as well as Macy's constant discounting of Kors products.


Kors acknowledged Wednesday that it will be cutting the number of units it sells to department stores, but it will be continuing its relationships with department stores like Nordstrom.

In response to the Wedbush report, Nordstrom had told CNBC "we are not discontinuing our relationship with Michael Kors handbags and accessories," while also acknowledging "we continue to edit our offerings across our business to best meet our customers' needs."