US luxury group Capri has ended its fiscal year on an unsurprisingly gloomy note, largely due to the negative impact of the coronavirus.
While the slip of 11.3 per cent in total revenue does not look too bad compared to some other retailers, this is mostly because Capri’s quarter ends on March 28 and, therefore, does not include the massive disruption of April and May when the US and many other countries went into lockdown.
These numbers are something of a prelude to a significantly uglier set of first quarter results – indeed, Capri expects revenue for that period to be down by around 70 per cent.
Jimmy Choo’s long haul ahead
On a brand basis, Jimmy Choo posted the worst performance with revenue down by 23 per cent. On the bottom line the division made an operating loss of US$23 million. While performance has been improving over the past couple of quarters, mainly thanks to enhanced collections of active footwear and accessories, the disruption of the pandemic badly affected the sale of more formal and fashionable footwear styles as consumers started to work from home and restricted socialising.
Unfortunately, this is a trend that will continue for at least the next two quarters and it is hard to see Jimmy Choo regaining much momentum. That said, the year-old decision to transform Jimmy Choo into a more balanced luxury brand that sells high-end footwear for leisure, some fashionable sneakers for active occasions, and a wider range of accessories, now seems extremely prescient.
This will not completely offset the challenges in other parts of the market but does give Jimmy Choo a lifeline that will stop it from completely sinking.
Versace bucked the general trend with a 55.5-per-cent increase in sales. Some of this is due to softer comparatives from the prior year, when Capri had only just taken control of the business.
However, the company also deserves credit for the various improvements it has made to the brand, particularly in terms of collections. A renewed focus on accessories, driven by a new Virtus range supported by strong marketing, has helped to boost sales. As GlobalData noted prior to the acquisition, the Versace brand was, admittedly by design, rather gaudy and off-putting for many consumers. Working with Donatella, Capri has begun to change this by creating a more understated, but still flamboyant, selection which has successfully improved both customer engagement and brought new shoppers to the brand.
While there is no doubt that Versace will be disrupted by the pandemic in the near term, the brand appears to have a renewed sense of purpose which will help it to deliver next year and beyond.
Michael Kors in distress
While Versace thrived, the Michael Kors division remains in distress. Revenue was down by 18.4 per cent off the back of a very modest decline in the prior year. This caps a year when sales have fallen in every single quarter.
Although some parts of the assortment, such as sneakers and accessories, have performed well, the rest of the business is lacklustre. Michael Kors still suffers from an identity crisis: the brand spans far too many different styles, products, and price tiers. As a result it lacks integrity and is unable to build a business or aesthetic around a clear, core customer. In a highly competitive marketplace of luxury brands, this position simply isn’t good enough to drive sustainable growth.
Unfortunately, these trends are not new and have been in play for at least two years. Now that Versace and Jimmy Choo appear to have more sound underlying strategies our hope is that management will turn its attention to untangling the Gordian knot of Michael Kors’ brand image.
Overall, like other retailers, Capri is in for a rough ride over the next six months. It has the liquidity to survive the storm. But it must work on making its core brand seaworthy for the calmer waters ahead.
- Neil Saunders is MD of GlobalData Retail.