(Bloomberg Gadfly)—It’s taken a while, but big American labels finally seem to get it: If you want to be a luxury brand, then you have to act like one.
Michael Kors Holdings Ltd., No. 328 in the Internet Retailer 2017 Top 500, reported Monday that gross profit rose 7.2% in the latest quarter from a year earlier. Its comparable sales fell 1.8% year-over-year—hardly a blockbuster, but an improvement.
Last week, Ralph Lauren Corp. (No. 64) reported adjusted gross margin ticked up in the latest quarter, suggesting its turnaround efforts are starting to build a healthier company.
Both companies are using a similar playbook. Each is working to make its products less ubiquitous, partly by retreating from beleaguered department stores.
And they’re trying to nudge people to buy their goods at full price. Kors said that, in its Americas business, it had 40% fewer promotional days in the second quarter than in the same period last year. Ralph Lauren said average unit retail, or AUR, at its stores and websites was up 5% in the quarter compared to a year earlier as it pulled back on discounting.
And both brands acknowledge that one way to get people to pay full price is simply to make more must-have products. Kors said it increased its new offerings for the fall season by 40% in order to show shoppers more innovation. Ralph Lauren, meanwhile, has added more limited-edition styles to give people a reason to spend.
Tapestry Inc., the corporate parent (No. 168) of Coach and Kate Spade, has also been pulling back on promotions and selling its wares in fewer department stores.
Now that all of these brands are several quarters into a similar strategic journey, and it is working across the board, it appears we’ve arrived at an important turning point: The days of American luxury houses desperately chasing top-line sales are really, truly over.
This step change makes Kors and Tapestry’s newly acquisitive postures look even more logical. Kors snapped up luxe shoe line Jimmy Choo earlier this year for $1.2 billion, while Tapestry bagged Kate Spade for $2.4 billion. Both companies say they’re hungry for more deals that will turn them into multi-brand conglomerates.
As executives finally grasp they can’t increase sales at a blistering rate at their largest labels without tarnishing their image and hurting margins, it makes sense to snap up brands that can grow at a sustainable pace.
I’d also argue that less-aspirational retailers could take a lesson from the success these upscale brands are having in tapering promotions. Specialty retailers such as Gap Inc. (No. 24) and J. Crew Group Inc. (No. 50) are still leaning heavily on this tired tool to get shoppers in their doors and on their websites.
They’d almost surely feel temporary pain if they pump the brakes on those discounts, but it would be worth it over the long haul. Fast-fashion chains are always going to beat them on price. So why not try to retrain shoppers to pay full price for a product you can plausibly convince them is of better quality?
At any price point, it’s a tough moment to be in the apparel and accessories business, as shoppers seem intent on spending money on almost anything but sprucing up their wardrobes. But America’s accessible luxury giants show it’s not hopeless if you’re willing to make bold strategic moves and stick to them.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Favorite