Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Michael Kors may not find a savior in European conglomerate LVMH, but it's smart for the handbag maker to keep searching for help saving its struggling retail business. 

Deflated
Shares in luxury makers Kate Spade and Michael Kors have fallen from their peaks, while other luxury goods companies struggle to sustain gains
Source: Bloomberg

Shares in Michael Kors Holdings fell 5 percent on Monday, after a number of Wall Street analysts downgraded the company following Friday's disappointing earnings release. 

Investors pushed shares momentarily higher on Friday after reports surfaced suggesting LVMH Moet Hennessy Louis Vuitton SE could acquire the company. But the stock sold off as both companies declined to comment on a potential transaction, and others shrugged off the deal chatter as wishful thinking.

The merger talk is no surprise. Similar rumors popped up last month around a potential Burberry-Coach tie-up. Likewise, shares of Kate Spade charged up 9 percent after a disgruntled investor suggested the company seek to put itself up for sale. 

A further consolidation among luxury goods makers is inevitable as sales stall, consumer confidence wanes, and companies try to recast themselves as high-end accessories sellers by raising prices, slowing outlet growth, and pulling goods out of department stores.   

In The Red
The last time women's accessory and specialty stores saw sustained increases in sales growth was in 2013
Source: First Data SpendTrend, Bloomberg

Notably slowing U.S. imports for shoes, gloves and handbags show that the pain in the branded accessories industry in the largest market for luxury goods is likely to extend through the all-important holidays and into next spring.

Accessories Losing Appeal
Year-over-year change in U.S. imports of shoes, gloves, and bags
Source: Panjiva

LVMH would be smart to stay away from Kors, though. The company sold its one-third stake in Kors in 2003 for an undisclosed sum -- right before Kors went public, built hundreds of stores, and increased sales and profits exponentially. Now, that growth has come to a standstill.

Overstocked
Michael Kors' sales and profits skyrocketed after its IPO, but growth has since slowed
Source: Bloomberg

While Kors might be the one that got away, that doesn't mean LVMH should move on it now. It would have made more sense to acquire Kors before its $944 million IPO five years ago.

LVMH has its hands full with smarter acquisitions concentrated on high-end brands with long histories and unique positioning. For instance, last month it acquired an 80 percent stake in suitcase maker Rimowa for $686 million.

If anything, LVMH has been moving away from Michael Kors-type companies, which offer accessible luxury at lower price points. 

In a rare disposal by LVMH, it sold Donna Karan International to G-III Apparel Group, for an enterprise value of $650 million. It also ditched the more-accessible Marc by Marc Jacobs brand, preferring to focus on a reinvigorated and expanded line for the main label.

Kors, which has already seen its market value cut in half, might be ripe for another takeover offer in the coming months: Kors just reported its first year-over-year quarterly revenue decline since its 2011 IPO. Consensus estimates call for declines to continue for the coming quarters, which could make its price tag cheaper. 

The best scenario could be finding a group of investors to take Kors private, letting it slow the expansion that over-exposed its brand and made it less popular with a new generation of handbag buyers turned off by big logos and flashy gold trappings. That way, it could overhaul its products, raise prices, and reclaim its luxury status out of the public eye. 

It's no LVMH. But sometimes less attention and flash can be a good thing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net