Declining Handbag Sales Could Fuel Footwear Demand

Gucci
Gucci resort '16.
Thomas Iannaccone.

For decades, shoes and handbags have competed against each other in a quest to be dubbed every consumer’s “must-have” accessory. While the footwear business has been uneven in the past few months, shoes continue to occupy the spotlight, particularly in the athletic and designer categories.

Meanwhile, several factors, including saturation and lack of innovation, have created challenges for handbags. “Broadly speaking, the resurgence of footwear trends appears to be fueling a stronger business, and perhaps that is taking a toll, to some degree, on handbag spending,” said B. Riley & Co. LLC analyst Jeff Van Sinderen.

After years of robust sales, handbag power players, including Coach Inc. and Michael Kors Holdings Ltd., were plagued by softening product demand. The declines trickled into the first half of 2015 and many market watchers generally remain sidelined. “Overall, handbag performance has been mixed and is still challenging, at least for a number of the major brands,” Van Sinderen said. “Domestic continues to be slower for some of the majors — as reflected in both Coach and Michael Kors’ same-store-sales — while Kate Spade & Co. appears to be outperforming others, as we see in its double-digit direct-to-consumer growth.”

coach-spring-2016-mens-collection-8 Black low-tops and a printed duffle bag at Coach’s spring ’16 show. Getty Images.

In a July 29 report, Cowen & Co. analyst Oliver Chen said his retail checks in 40 states revealed slowing momentum across the handbag sector, with Michael Kors, Coach and Kate Spade all showing deceleration in June.

In the higher-end realm, the second quarter revealed modest improvement in revenues at Gucci and Louis Vuitton — which both suffered soft demand for their iconic monogram handbags in previous quarters. But if a true handbag revival is to come, experts said, brands must combat overdistribution and excessive promotion.

Many of the rules in that space, Van Sinderen said, apply to footwear as well. “When a brand becomes too ubiquitous, demand among the younger female demographic tends to fade,” he said. “In contrast, having strong product with adequate newness and controlled distribution [is a winning formula].”