Luxury brands are kicking off the holiday season with significant discounts that will likely elicit opposite reactions from consumers and shareholders.
Early Tuesday morning, Kate Spade (KATE) announced a surprise sale of up to 75% off accessories, while Michael Kors (KORS) is offering 25% off an online order of $250 or 30% off an order of $300. Coach (COH) is discounting entire online purchases by 30%.
This week's sales reflect the type of broader discounts that consumers have come to expect from the retail sector.
"We continue to feel the impact of the price-sensitive customer in our full-price and off-price channels but particularly in our outlets where the environment remains heavily promotional, contributing to increased margin pressure," Kate Spade CEO Craig Leavitt said on the company's most recent earnings conference call.
Shoppers are not making purchasing decisions based on particular brands but rather products that offer style and function at entry price points, Cowen & Co. analysts wrote in a note last week.
Additionally, macro pressures such as lower tourism spending and promotional activity at department stores and outlets will likely continue to pressure store traffic, the analysts claimed.
"We believe department stores continue to see both unit and pricing pressure - as customers both gravitate to lower price points and less well known brands, and private label," the analysts noted.
Department stores have been discounting handbags so heavily that luxury brands have begun to pull their products from department store shelves.