If Handbags Make a Comeback, Will Shoes Lose Their ‘It’ Status?

After a streak of staleness that peaked in 2015, handbags appear to be gaining steam once again.

Helped by an increase in innovation and newness — think clear styles and straw materials in unique silhouettes — experts have noted that the category once plagued by over distribution and hefty discounting may have re-located its cool.

Not to mention, category leaders Tapestry Inc. — owner of Coach and Kate Spade — and Michael Kors appear to have worked out many of their challenges, which were dragging down the sector. (Tapestry is estimated to capture 40 percent of the handbag market; Michael Kors as a market share of around 25 percent.)

“Coach has done a very good job over the past three or so years of transforming its business and Michael Kors is on its transformational path,” explained Camilo Lyon, a retail-industry analyst with Canaccord Genuity Inc. “[Since] they are the category leaders and they’ve become much more focused on price integrity and innovation — this is much more beneficial to everyone in the space because it creates the right stratification on pricing.”

To illustrate the point: At the height of handbag malaise, Michael Kors engaged in heavy promotions to clear excess inventory which hurt lower-priced brands like Steve Madden. For example, a Steve Madden bag priced in the $70 to $80 range attracted a certain tier customer, who may not typically spend more than $100 on a bag. But, as Michael Kors slashed prices, a $250 bag could have easily become available for $100, luring a Steve Madden customer into a higher-priced tier.

“When Kors was in their one-to-two years worth of slumps — they had to discount so much to get through their inventory that they started competing with lower priced bags — that, then, hurt the segment’s success,” Lyon said.

Meanwhile, by several accounts, footwear — riding the waves of unprecedented strength in the athletic sector — appeared to have been reaping some of the benefits of handbag fatigue by becoming the new “it” item.

But, over the past two years, Michael Kors has moved to regain its more premium image — reeling in distribution and acquiring luxury label Jimmy Choo to create a more high-end portfolio. Meanwhile, Tapestry CEO Victor Luis had already gotten through much of that heavy lifting for Coach — exiting many factory stores and cleaning up distribution elsewhere — when the firm acquired Kate Spade in 2017 and set it on a similar path. (Combined, Kate Spade and Coach helped Tapestry pull of a 33 percent gain in revenues in the most recent quarter. While Michael Kors’ revenues increased 11 percent to $1.2 billion and its profits turned positive when it reported Q4 in May.)

Not to mention, super luxury names like Gucci and Chanel have seen their handbags take a larger share of the limelight as a renewed interest in big logos has cropped up.

But — as handbags rise in popularity again — does this mean footwear will slip into the background?

Lyon doesn’t think so.

“[Handbags and shoes] are not substitutes, they’re complements and there’s such a strong trend in footwear that I don’t think there’s a trade off happening,” he said.

What’s more, a healthier economic backdrop — bolstered by a record-low jobless rate and fairly decent gas prices — are perhaps giving consumers more cash to spread around. (Although President Donald Trump’s trade war, which has now expanded to include a threat of new handbag tariffs — sans footwear or apparel— could shake things up.)

“And, other retail categories could be [slipping] right now — so that neither handbags or shoes would have to lose out to each but each could be [gaining] the share lost elsewhere,” Lyon said.

Crisis averted.

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