Handbag Revenues Climbing Back to Pre-pandemic Times
There is a reason why handbag revenues are climbing back up. With the economic growth in various African countries, the demand for bags is on the rise. According to the United Nations Conference on Trade and Development, the economies of African countries grew by 10.8 per cent last year. These countries are also seeing a lot of foreign investment flowing into their markets. In fact, Morocco, Egypt, and Congo each account for over £ six billion in foreign direct investment. Meanwhile, Ethiopia accounts for nearly £ three billion.
Kering
After suffering a blow from the recent coronavirus outbreak, luxury goods maker Kering has announced that its revenue is back to pre-pandemic levels. The company also said it would look at its store footprint in the United States. The country was the fastest-growing luxury market last year. Kering CEO Bernard Pinault recently visited some of the “Sun Belt” hubs, which have accelerated their consumer economy but have relatively fewer luxury boutiques.
Kering also reported strong results and planned to make some changes to its management structure. Specifically, its CEO Francois Henri Pinault will cut his fixed portion by 25% and waive the variable portion of his 2020 remuneration. The decision is expected to boost the company’s share price and increase its profitability.
Kering is also moving to reduce its exposure to wholesale. The company’s reliance on wholesalers has been under scrutiny since the pandemic. Its strategy has shifted from relying on third parties to focusing more on direct relationships with clients and close monitoring of inventory levels.
Kering also sees a boost in its retail business. Its retail sales rose by more than 40 per cent in the fourth quarter, and its operating margins increased to an all-time high of 28.3 per cent for the year. Kering also saw strong growth at Balenciaga and Bottega Veneta, as well as in its Other Houses division. Overall, Kering’s revenue is now up 35 per cent over the year and 13 per cent above its pre-pandemic levels.
The brand has also donated a million dollars to the CDC Foundation, which helps healthcare workers around the world. Meanwhile, it has purchased 60 3D printers to use for medical products in the Paris Hospital Cochin.
Chanel Bags
Chanel handbag revenues are climbing back to pre-pandemic levels. The luxury brand is blaming currency exchange rates, increased production costs, and efforts to maintain pricing consistency across markets. These efforts are keeping prices high, but the result is a cult-like demand. As a result, Chanel is able to maintain a healthy 35% profit margin.
Chanel has been raising the price of its iconic models, including the Classic Flap handbag, which costs nearly EUR8,000 today. That’s 16 per cent more than it cost at the end of September. It’s also raising the price of its quilted leather 2.55 with gold chain, which will cost EUR7,800 starting in December 2020. Price hikes have also hit the Flap and Boy bags, as well as the Classic WOC.
Luxury brands are expected to raise prices at least once or twice per year. The increases are in line with materials and labour costs. They also aim to increase prices to compensate for lost revenues, especially in key Asian markets. But they must maintain the exclusivity of their products.
Despite the slump in sales, Chanel’s price hikes are a good sign for the brand. The company is a leader in luxury handbags and is looking to maintain its market share. In the past few years, the company has raised its prices four times. However, the recent pandemic has exposed the disparity between healthy and weaker luxury brands and may accelerate consolidation. Chanel is owned by the billionaire brothers Alain and Gerard Wertheimer. However, the brand has no plans to sell itself.
In the US, handbag sales are on a rebound. According to the NPD Group, the category’s revenue is only 2 per cent below pre-pandemic levels. This suggests that consumers have more disposable income and are willing to trade up.
Stuart Weitzman
With the global economic slowdown over, many retailers are turning back to premium handbag brands. One of the companies, Stuart Weitzman, is forecasting a 15 per cent revenue increase this year. The company, which is owned by U.S. fashion group Tapestry, is seeing a strong rebound in its handbag business thanks to the return of luxury goods demand in China and North America. The company is also planning to add more accessories to its stores.
Despite a slowdown in global sales, Coach and Kate Spade are reporting double-digit revenue growth this year. The two brands are both down 7% from fiscal 2018, but both are up double-digits on a two-year basis. Stuart Weitzman’s handbag revenues are still relatively small compared to those of its peers, contributing less than five per cent of overall sales. Management cited increased pricing as a key factor in the company’s performance.
The parent company of Stuart Weitzman, Kate Spade New York, and Coach, Tapestry, reported first-quarter adjusted earnings of 82 cents per share, beating Wall Street expectations of 70 cents per share. The company’s sales grew 26% year-over-year and beat analysts’ estimates by 450 basis points.
The company’s turnaround efforts are likely to remain focused on recovering market share, which it has lost in recent years at the £300-plus price point. However, this deal with Stuart Weitzman could be a distraction for management. While Weitzman has not seen a big boost in sales since the acquisition, the company’s new owner plans to boost its sales by 7% a year in the next five years. It also gains deep expertise in shoes.
Kate Spade
Kate Spade isn’t the only one who’s experiencing a comeback in the luxury handbag market. Coach, the brand owned by fashion conglomerate Tapestry, also announced that handbag revenues were up 25% globally in the first quarter of 2015. The company also reported a 21% increase in North America. Tapestry executives attributed the gain to reduced promotional spending and higher pricing.
The designer was born and raised in Kansas City. She began her career as a fashion editor at a magazine and soon began to design handbags. Her handbag designs soon became the next fashion statement. She soon moved on to designs for women and men. Her success paved the way for other female lifestyle designers, including Tory Burch and Jenna Lyons of J. Crew. A few years later, Kate Spade and Mr. Spade married and started the brand.
The brand also began to focus on philanthropic projects. Her foundation seeks to promote economic equality for women, and in 2016 Kate Spade launched a women’s accessories line in collaboration with Paola Venturi. The line also introduced intimates, which were named after Venturi.
The issues surrounding Kate Spade have weighed on the company’s performance, but the negative news could be a buying opportunity for investors. Coach is a strong brand that can withstand the effects of Kate Spade’s problems. Moreover, it dominates the company’s total sales, accounting for 70.9%, while Kate Spade’s revenue is only 22.7% of that. Ultimately, Kate Spade’s problems are not enough to halt Tapestry’s sales growth.
Tiffany & Co
The recent acquisition of DFS and Sephora by French luxury goods conglomerate LVMH is a positive development for Tiffany, as it sets the company on an expansion course in China and further strengthens its position in the U.S. hard luxury market. The new CEO, Arnault, has said he’s not in a hurry to sign any major deals but added that he’d be open to offers if a potential target was willing to sell.
Last week, the company reported holiday sales growth of 2 per cent, exceeding the company’s previous record. Net sales in the Asia-Pacific region increased 20 per cent, while sales in Japan rose 8 per cent. The company’s results were tempered by declines in the Americas region and Europe, which saw holiday sales fall eight per cent. However, in constant currency terms, the company’s results were still impressive. Its operating margin improved by 470 basis points to 16.4 per cent.