At headline level, the latest Capri results looks to have been a good quarter for the fashion retail owner, with revenues up by a solid 11.9 per cent.
However, the results are far from spectacular. The uplift in revenue is all a function of the inclusion of sales from Versace, which was not part of the group at this point last year. Revenue at the two other brand houses – Michael Kors and Jimmy Choo – both fell significantly.
Moreover, margins at both divisions declined, contributing to a 70.2 per cent dip in operating income. All the metrics are going in the wrong direction and run counter to Capri’s business plan for strengthening profitability as it advances to being an US$8 billion business.
Michael Kors is the most problematic part of the business and the brand starts the new fiscal year in the same way as it ended the last one – with a decline in overall revenue. The difference from last year is that the pace of decline has accelerated, underpinned by a modest deterioration in comparable sales. As much as Capri blames the poor performance on its efforts to rebalance the brand, the weak numbers have more to do with a lack of underlying enthusiasm from some of the audiences it wants and needs to reach.
Part of the issue is the baggage that Michael Kors still carries from the days when it expanded to the point of ubiquity: there are still lingering perceptions that the brand is unsophisticated and lacks the refinement of labels like Coach. None of this is aided by the fact that Michael Kors deliberately plays up its edgy nature with some bold and occasionally gaudy designs supported by marketing and promotion that can appear gauche. These things may differentiate the brand from more conservative rivals, but they do little to increase its appeal.
To be fair, Michael Kors also has products that are elegant and its newer menswear ranges are designed to be fashionable and functional and so come across as more conservative. However, these get lost in the wider image of the company and make the offer look unfocused and schizophrenic. Michael Kors is still a brand that is unsure of its identity and this does not bode well for future growth.
Jimmy Choo’s heritage is more conservative, and its backstory is one of elegant products with interesting fashion twists. However, the influence of Michael Kors is starting to rub off and the brand is becoming more focused on bling with a pinch of ostentatiousness thrown in for good measure – as is exemplified by the new logo and some of the new non-footwear product launches. Attempts to amplify the brand are not necessarily wrong, but the methods being used have the potential to alienate existing customers and drag the brand into territory where it cannot thrive.
The integration of Versace represents an opportunity for Michael Kors and in terms of styling and brand attitude the division is a good fit for the ethos of the whole group. The challenge is to bring discipline to a logo that is larger than life, but which often lacks focus and coherence. We are generally supportive of the vision to grow share in menswear and activewear and to expand the store footprint. However, a lot of work on the overall brand vision is still needed to create a compelling offer for the customer.
Overall, Capri is fulfilling its vision to create a house of luxury brands. Unfortunately, it currently has a collection of brands that need a lot of work in order to reach their potential. We reserve judgement on whether current management can deliver the long-term growth plans they have set out.
- Neil Saunders is MD of GlobalData Retail.