Michael Kors expands, takes on Coach

New York: Coach Inc faces an upstart with momentum and brand recognition. His name is Michael Kors.

Since the designer's company went public three months ago, his ambitions have become clear. Michael Kors Holdings Ltd aims to more than double its North American store fleet to 400 and more than quadruple to 1,000-plus its department-store boutiques. Michael Kors will operate in malls and street locations, like Coach, sell accessories-heavy collections, like Coach, and focus on "accessible" luxury, yes, like Coach.

While both companies can thrive in the fastest-growing part of the US luxury goods sector, Kors may steal Coach customers.

"This is the first mega-brand emerging to take them more-or-less head-on in a direct hit," said Steven Dennis, founder of Dallas-based SageBerry Consulting LLC. "That's definitely going to impact Coach's business."

The fragmented fashion accessories category is ripe for competition and has attracted droves of growth-hungry bag makers and investors. Coach said the North American handbag and accessories market has been expanding at a rate of 10 per cent. In 2011, Americans spent $8.5 billion (Dh31 billion) on bags, according to Accessories magazine. Coach is now worth $22.7 billion and Michael Kors $9.1 billion.

Accessory shoppers

"It is a category that has been on fire and it has caught people's eye," Michael Binetti, an analyst with UBS AG in New York, said. US brands such as Ralph Lauren, Kate Spade, Tory Burch and even jeweller Tiffany & Co are all chasing accessories-happy shoppers.

Michael Kors' shares have more than doubled from their $20 offering price in mid-December, while Coach has advanced by about a third since then. The Standard & Poor's Supercomposite Apparel and Accessories Index gained 28 per cent.

Andrea Resnick, a Coach spokeswoman, declined to comment for this story in keeping with the company's long-standing policy of not discussing competitors.

When Michael Kors, a Long Island native and Fashion Institute of Technology dropout, unveiled his namesake collection 30 years ago, he focused on pricey, elegant yet sporty clothes that appealed to Upper East Side ladies-who-lunch. Later, red-carpet denizens such as Angelina Jolie and Gwyneth Paltrow began wearing his gear.

By 2004, Kors and his team had decided that cheaper accessories were the more profitable way to go and he added his secondary line, MICHAEL Michael Kors.

Leather tote

Today, accessories — which represent more than 62 per cent of revenue — are driving sales growth, Kors said in a backstage interview last month before his autumn 2012 fashion show in New York. They include a large tangerine Hamilton leather tote for $348, and a Bedford satchel in MK logo monogram at $328. Accessories have the major advantage of being free of sartorial constraints, he said.

"They have no size, no age," Kors said. "You could feel you are having a fat day, you can still wear accessories."

The same year Kors rolled out his second line, he joined the reality show Project Runway as a judge alongside model Heidi Klum. His sometimes acerbic commentary on contestants' designs — "She looks like she got caught in a tornado of toilet paper" — introduced his brand to millions of viewers. At the time, 11 per cent of Americans knew the Kors name. Now 71 per cent do, according to the company.

Lauren connection

Kors is led by CEO John Idol, who previously ran Donna Karan International Inc and worked at Ralph Lauren. Shareholders Laurence Stroll and Silas Chou, who head the private equity firm Sportswear Holdings and helped develop the Tommy Hilfiger brand, sit on the board.

Until the company went public in December, few knew how well it was performing. Turns out revenue soared 68 per cent in its fiscal third quarter ended December 31, while Coach, operating off a much bigger and older store base, saw a 15 per cent expansion in the same three months.

Michael Kors' revenue — which analysts peg at $1.3 billion in fiscal 2012 ending in March — may surpass $4 billion in less than 10 years, said Erika Maschmeyer, an analyst with Robert W. Baird & Co in Chicago. Per-share profit will rise 30 per cent in 2013 while Coach's will improve 18 per cent, said Brian Tunick, a New York based analyst with JPMorgan Chase & Co.