Millennial tastes are crushing these stocks

Trading Nation: Luxury stocks in trouble?

Luxury retail isn't what it used to be.

Coach fell over 2 percent Wednesday as Morgan Stanley downgraded the luxury name to underweight from equal weight, on worries the brand cannot effectively execute a "turnaround."

And Coach isn't the only name in the space that has some analysts concerned.

One key difficulty for the group is appealing to a younger generation, according to Richard Jaffe, managing director and analyst at Stifel Nicolaus.

"Broadly speaking, millennials want their own brands, they want their own products; they have their own life, their own lifestyle," and this presents a challenge for legacy brands that must adapt to appeal to younger consumers, he told CNBC in an interview Wednesday.

Jaffe in early August rated Coach a "hold," and his outlook remains the same. He noted the handbag manufacturer has instated new design and cost-cutting initiatives, but has faced a seminal problem: consumers' diminished appetite for handbags.

Upscale activewear manufacturer Lululemon and jeweler Tiffany are two names in the space to watch due to higher-than-average activity, according to Stacey Gilbert, head of derivative strategy at Susquehanna.

Gilbert has seen investors buying shorter-dated call options on Tiffany, which indicates that investors may be seeking a "quick bounce here," noting Wednesday on CNBC's "Power Lunch" that many investors are in a "wait-and-see" mode when it comes to luxury retail overall.

Coach is up over 22 percent year over year, but is down nearly 38 percent over the last five years.

If the legacy brands of yore aren't resonating, broadly speaking, with a younger generation, then what is working?

"The whole game has kind of turned into what I call 'Pokemon shopping,' where everybody is looking for discount shopping," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Wednesday on "Power Lunch."

Schlossberg said luxury retailers are undergoing a "massive transformation" as luxury names don't align with many younger shoppers' interests, and finds outlet malls, featuring brand names at discounted prices, are the "only thing working" in the luxury space.

And for this reason, Schlossberg said, "I think the whole thing is probably going to be in much bigger danger than people think at this point."

Disclaimer: Susquehanna owns 1 percent or more of Lululemon shares, and is a market-maker in Lululemon and Tiffany.