Michael Kors has had enough with department stores' excessive discounting.
After reporting a 7 percent decline in its wholesale business during the fiscal first quarter, CEO John Idol told analysts that come February, the accessories brand will no longer participate in department stores' broad-based friends and family sales, or accept coupons for its products there.
The label will also move forward with its strategy to cut back on the amount of merchandise it ships to these retailers, as it looks to rebuild the pricing power it's lost with shoppers. Because the brand is constantly on sale, consumers have forgotten the true value of the product, Idol said.
These discounts once again damaged its revenue and profit margins in both wholesale and stand-alone stores, Idol added. Michael Kors' same-store sales slid 7.4 percent during the fiscal first quarter, steeper than Retail Metrics' forecast for a 4.2 percent decline.
"It's creating confusion in the consumers' mind relative to the value of the Michael Kors brand when it's being seen so often on sale in so many different places," Idol said. "We have to correct something that we think is actually having a negative long-term effect for the brand."
Because of this pullback, Idol told investors they should expect to see further degradation at department stores for the remainder of the year and into 2017. The company has already started dialing back the number of goods it sends to department stores, a strategy it had previously announced.
Kors' comments come just one day after competitor Coach said that it will exit about 25 percent of the 1,000 department stores where it sells its product. Like Kors, Coach is trying to regain control over the prices charged for its handbags. Unlike Coach, Kors will not pull its brand from any locations.
Michael Kors' products are sold at retailers including Nordstrom and Bloomingdale's. Macy's generates the largest chunk of its wholesale revenue and accounted for 12.7 percent of its total sales last year.
The company reported fiscal first-quarter earnings of 88 cents a share on revenue of $987.9 million. That compares with 87 cents a share and $986 million in sales during the prior-year period. Analysts had been expecting the company to report earnings per share of 74 cents on revenue of $953 million, according to Thomson Reuters estimates.