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The side effect is the brand dilution. When outlet or factory store products are michael michael kors hamilton straw large tote limited, brand equity will see minimal impact from the off price channel. Coach's situation is completely the opposite. According to Cowen's Faye michael kors monogram continental wallet pale gold Landes, more than 60% of Coach's North America sales come from the factory store channel. Also, that is not uncommon now that there are more factory store Coach bags than full price Coach bags on the street. A premium brand handbag is supposed to be carried by more premium customers. When the handbags are mostly carried by customers without a proper brand image, many consumers pursuing premium brands will stay away. That is exactly what happened to Coach. Many people have been buying Michael Kors or Kate Spade in the last couple of years not because they like MK or KS that much, but because they want to have other brand alternatives. They do not want to be associated with the images of many factory Coach customers.
In my opinion, Coach is completely aware of this brand dilution issue. That's why Coach has michael kors tote had a recent management change. What has been troublesome is that the new management is still avoiding correcting the issue. Coach hired a new SVP to ramp up its full price store brand image, but is it a brand only associated with the image of its stores? Absolutely not. Also, Coach has started this year to frequently offer 25% off coupons to its full price products. Many people may notice that Coach's gross margin actually ends up higher with these coupons. Coach, in fact, is raising the full price. It just tried to use the promotion to lure people. It worked perhaps for one quarter. Then, people started to catch on to the trick. Frequent coupons are a route to disaster for a premium brand. What's worse is that according to the latest earnings conference call, Coach mentioned it will open around 20 stores (mostly factory stores) in FY 2014 while closing 15 20 full price stores.
In addition, in order to save declining sales, Coach planned other categories such as men's, shoes, and apparels. These are not necessary bad initiatives, especially men's and shoes. However, these initiatives cannot fix Coach's brand issue. Coach also aggressively opens stores in Asia to compensate for the declining North America sales. Some investors are especially encouraged by Coach's international sales. Remember, fashion is a global thing now, although a time gap still exists. In China, for example, Coach still capitalizes on the time gap by selling many handbags to less fashion conscious customers. The more fashion sensitive crowd, however, already avoids Coach at their best.
In its latest earning report, michael kors second hand shop .co.uk Coach still claims it enjoyed double digit comps in China. In my opinion, the high comps number was mostly helped by new stores or distribution expansion. Coach is expanding its stores at a double digit pace. New stores mostly in tier three cities, which connect much more slowly to the North America trend enjoy high double digit comps, which offset the weakness of stores in tier one cities. It is just a matter of time before Coach sees the same comps decline in America in China.
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