The retail industry is going through a major decline right now. If you didn’t know this, you’ve either lived under a rock or did all of your shopping on Amazon.
Kidding aside, stores are closing by the hundreds, thousands of people are losing their jobs, and once-invulnerable companies that existed for decades now hang on by a thread. It’s almost impossible to fathom how retail giants like Sears, Macy’s, and JCPenney might not be here five years for now.
It’s not just the major department stores that suffer. Michael Kors ($KORS), an upscale apparel and accessories brand, just reported rapidly decreasing foot traffic, decreasing sales, and an exodus of customers to cheaper, more accessible competitors. To combat this downward trend and stay afloat, Michael Kors is doing the unthinkable: closing a sizable chunk of their existing stores.
Michael Kors is closing hundreds of stores.
The New York-based luxury fashion brand will close at least 100 of their locations in the next two years. At last count, there are around 555 Michael Kors locations around the world, not including the thousands of in-store Michael Kors kiosks at department stores. This means that at least 18% of all Michael Kors locations will cease to be in before the decade’s end.
Michael Kors is losing money.
During their last financial quarter, the company announced that they lost money, mostly thanks to underperforming stores. During the fourth quarter of 2016, Michael Kors lost $193.8 million, with store sales declining by 14.1% compared to the same period in the previous year. This loss is mostly attributed to underperforming stores, though the company had difficulty with department stores selling their products at a heavily discounted price. Thanks to new company policies, these discounted MK products — which are often sold cheaper than the brand’s stores — will no longer allowed to be discounted during department store sales. The company even plans to roll back the availability of products in department stores to woo more shoppers to their dedicated stores.
This should be good news for shareholders, but it’s not.
Michael Kors will save between $100 million to $125 million when they close these underperforming stores. At the same time, these closures means fewer products sold at fewer stores. This will likely cause a further decrease in revenue down the line. Michael Kors’ stock is currently down by 10%, which means shareholders are none too pleased about the company’s ability (or lack thereof) to stop this decline.
Should you invest in Michael Kors?
If you think Michael Kors will somehow come out of 100+ store closings as a leaner and meaner retail, then be sure to do your research before you even think about investing in them. If you think these closures are just a sign of worse things to come, you might want to sit this one out. Instead of investing in $KORS, you could invest in a retailer that’s actually making money.