Michael Kors (KORS) brought out the bad news about yet another poor quarter. Revenue fell 3.2% overall. Same-store sales dropped by nearly 7%.
The company tried to cast a positive light on the news, saying it would take the opportunity to revamp itself. Kors intends to reduce discounting of its goods and to improve the quality to a level fitting a luxury brand. Many retail observers say that Kors no longer qualifies as a luxury brand and must do nothing less than rebuild its brand.
Branding is vital for any company, but particularly for luxury goods. If the market senses that goods aren't high quality, or that they aren't good value unless on sale, then even the mightiest brands may suffer.
But Kors is not a good growth bet for 2017. It will have to work hard to reset itself after making a number of poor decisions over the years. In addition, Bernard Arnault, the CEO of luxury goods conglomerate LVMH, said that luxury goods markets tend to have 10-year cycles, and that that cycle is set to hit a downward trend.
That said, Kors might consider the strategies of Hermes and other luxury brands that have righted themselves or never needed to.
Hermes has never abandoned its luxury roots. The company sells the highest quality leather goods and signature silk scarves and ties at its own retail stores with some agency shops in airport duty free zones, as well as at shops in some upmarket resort towns. It closely monitors sales at the outside retailers where it sells goods.
The only discounting happens once yearly at off-store locations and affects a limited number of items.
The company under-produces to keep its goods exclusive and customers waiting and wanting. In its most recent quarter, Hermes's revenues rose some 7.6% despite slowed growth in China sales, which were still up 4%.
Separately, there is evidence that a company returning to its roots can be successful.
Consider the handbag and leather goods manufacturer Coach , which has struggled in recent years after offering products in a wider price range than during its heyday.
The company recently refocused on quality, eliminated discounts and reduced the number of stores where Coach merchandise is available. Sales rose slightly in its latest quarter.
Hermes and Coach offer a lesson for Kors: Concentrate on what made you successful at the start.
That said, it's best to stay away from Kors until it can prove it's going to rebound.
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Neil George does not have any conflicts of interest including no current ownership of the companies mentioned above.