takeaways from the 2017 michael kors investor day … · 1 june 21, 2017 deborah weinswig, managing...

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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Takeaways from the 2017 Michael Kors Investor Day

Source:MichaelKorsInvestorDaypresentation

Atthe2017MichaelKorsInvestorDayevent,managementoutlinedRunway2020,thecompany’sstrategicplanfordrivingfuturegrowththroughproductinnovation,fleetmodernizationandexpansionofitsglobaldigitalinnovationefforts.Highlightsfromtheday’spresentationsinclude:

1) MichaelKorsismodernizingandrightsizingitsfleetandrenovating100storesglobally.Overthenext24months,thecompanywillclose100–125stores,whichwillallowittoincreaseprofitabilityandseeannualizedsavingsof$60million.

2) MichaelKorsisdiversifyingandexpandingitsproductmixbeyonditslargestcategory,handbags,intomen’s,footwearandwomen’sreadytowear.Thecompanyhascommittedtodelivering40%lessproductwith65%–70%morenewness.Thecompanyisalsoreducingpromotionaldaysby40%.

3) ThecompanybelievesthatChinarepresentsa$1billionopportunity.ItplanstoexpanditsfootprintinAsiafrom228storescurrentlyto335storesin2020,withmorethanhalfofthenewstoreslocatedinChina.

4) Thecompanyprojectsthatitwillreturntogrowthby2020.Fiscalyear2018isexpectedtobearesetyeartoshrinkrevenuetoahealthybase.Thecompanyexpectslow-single-digitrevenuegrowthandlow-tomid-single-digitEPSgrowthinfiscalyear2019.Forfiscalyear2020,MichaelKorsprojectsthatallareaswillbegintoworktogether,andthatthecompanywillseepositiverevenuegrowth,positivecompsales,improvingmarginsandmid-tohigh-single-digitEPSgrowth.

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MichaelKorsInvestorDay:KeyPointsTheFungGlobalRetail&Technologyteamattendedthe2017MichaelKorsInvestorDayeventinNewYorkCity.Presentingfromthecompanywere:

JohnIdol,ChairmanandCEO

JarynBloom,GroupPresident,Retail

ScottZalaznik,SVPofDigitalandE-Commerce

CedricWilmotte,President,EMEA

PatrickLee,President,GreaterChinaandSoutheastAsia

DonWitkowski,President,Men’s

PhilippaNewman,President,CollectionandMMKAccessories/Footwear

JillFishman,SVP,GlobalLicensing

DineshKandiah,VP,GlobalCommunications

TomEdwards,CFOandCOO

ManagementkickedoffthefirstannualMichaelKorsInvestorDaybydiscussingthecompany’shistoryandprovidinganoverviewofitsRunway2020strategicplan.

MichaelKorsisaglobalfashionluxurybrandwith10globalflagshipstoresandapresenceinmorethan100countriesandhas3,747shops.Launchedmorethan35yearsago,itisnowa$4.5billioncompany.Since2012,whenitwentpublic,thecompanyhasgrownrevenuesata28%compoundannualgrowthrate(CAGR),from$1,302millionto$4,494million.Revenuesdeclinedfrom$4,712millioninfiscal2016to$4,494millioninfiscal2017.


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ChairmanandCEOJohnIdoldescribedRunway2020asavisionandplanforsettingthecompanyupforfuturegrowth.Runway2020centersonproductinnovation,noveltyandelevatingtheproductimage.Managementexpectsfiscalyear2018tobeatransitionyearandsaidthatitanticipatesthatproductinnovationandfleetmodernizationinitiativeswillhavetakenholdby2020.

Thecompanyhasthreebrands:MichaelKorsCollection,MichaelMichaelKorsandMichaelKorsMens.

• MichaelKorsCollectionisdescribedasa“glamoroussophisticatedcollection”gearedtowardaluxuryjet-settercustomer.


• MichaelMichaelKorsispositionedtoappealtomillennials,akeydemographicforthecompany.ManagementreportedthatMichaelKorsisafavoritebrandamongmillennialsandteens,accordingtoaGoldmanSachsstudy,andthecompanyseestheseyoungershoppersaskeytoitsfuturegrowth.

• MichaelKorsMensispositionedtoappealtomenwhoareconfident,connectedandadventurous,withamodernedge.Thecollectionrangesfromsportsweartoleathergoodstoaccessoriesforthemanonthego.

Astheglobalbrandambassador,MichaelKorshimselfcontinuestogarnerbrandattentionandsocialmediarecognitionaroundtheworld.Forexample,heattendedthreebrandevents,inLondon,SeoulandSingapore,in2015and2016,andthoseeventsgenerated28.2billiontotalglobalpressimpressions.

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DiversifytheProductMixManagementsaidthat,undertheRunway2020plan,thecompanyislookingtorebalanceitsproductmixandexpanditsopportunitybeyondaccessories.Today,handbagsrepresent70%ofthecompany’soverallsales,butthatshareisexpectedtofallto62%by2020.Partofthisdecreasewillresultfromthecompanyreducinginventoryinitswholesaledistributionchannels.Thecompanyprojectsthatthehandbagbusinesswillseeflattolow-single-digitgrowththrough2020,andthatmostofthegrowthinhandbagswillcomefromAsia.Additionally,managementprojectsthattheNorthAmericanhandbagmarketwillseeflattoslightlynegativegrowthoverthesameperiod,whereasEuropewillseelow-tosingle-digitgrowth.

Managementexpectsthemen’s,footwearandwomen’sready-to-wearcategoriestogrow.Thebiggestincreaseisexpectedinmen’s:thecompanyexpectsthecategorytogrowfrom3%ofsalesinfiscalyear2017to8%infiscalyear2020,inboththeretailandwholesalechannels.Footwearisexpectedtoincreasefrom11%to13%ofsalesoverthesameperiod,andwomen’sreadytowearisexpectedtoincreasefrom10%to12%ofsales.Eachofthesecategorieshasalowermarginthanthehandbagbusiness,butthecompanyreportedthatitsstrategyistherightapproach,asitprovidesmultipleavenuestoreachthecustomer.Thecompanyprojectsrevenuegrowthinallthreecategoriestobeinthelow-singledigitsthroughfiscal2020,andsaidthatwomen’sapparelisthemostprice-sensitiveofthethreecategories.

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InnovateinMenswear:“PolishedSportswear”MichaelKorsisfocusedongrowingitsmen’sbusiness,andmanagementdescribedthecompany’sstyleofferingas“polishedsportswear,”whichisanupdatetoofficewear,wherefunctionmeetsfashion.Forexample,allmen’spantsandwovenshirtscontainstretchablefabric.Managementreportedthatcustomerfeedbackonitsmen’slinehasbeenverypositive.MichaelKors’biggestcompetitorsinmenswearareHugoBossandCalvinKlein.

Themen’sbusinessissmallandnew,andmanagementsaidthatitisanareaofopportunity.MichaelKorshasseenstronggrowthinsportswearandabetter-than-expectedresponsetosmallleathergoodswithinthemen’scategory.Inthelongterm,thecompanybelievesthatitcanbuilditsmen’sretailbusinessintoa$1billionsegment.

InnovateinSmartwatchesandWearableTechnologyManagementreportedthatitisfocusingonsmartwatchesandwearabletechnology,giventhatthetraditionalwatchcategoryisindecline.ThecompanylaunchedAccess,asmartwatchthatcombinesfashionandfunctionalitywithcustomizablefaces,interchangeablestrapsandsocialconnectivity,andtheMichaelKorsBradshawwatchwasthebest-sellingAndroidsmartwatchoverthe2016holidayseason.ThecompanyrecentlyintroducedtheGraysonmen’ssmartwatch,whichfeaturescustomizationandappswithhundredsofoptions.ThroughastrategicpartnershipwithGoogle,MichaelKorshascreatedanappcalledMySocialthatisavailabletoownersofcertainMichaelKorssmartwatches.TheappallowsuserstouploadphotosfromInstagramtouseastheirwatchfaces.

Watches5%

Men’s3%

Footwear11%

Women’sRTW10%Handbags

&SLG’s70%

Other2%

FY17

Watches4%

Men’s8%

Footwear13%

Women’sRTW12%

Handbags&SLG’s62%

Other1%

FY20

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Deliver40%LessProductUndertheRunway2020strategicplan,MichaelKorsplanstodeliver40%lessproductoverallwith65%–70%morenewnessacrosswomen’sreadytowearandhandbags.Byfocusingonanarrowerrange,thecompanyaimstohavemorefocused,elevatedproductdesigns.ManagementnotedthatamainfocusfortheteamiselevatingtheiconicMichaelKorshandbagcomponents(texture,hardwareandlogo)tonewlevels.

Thedesignteamisalsolookingatpersonalizationandcustomizationinordertooffercustomershandbagoptionsformonograms,reversiblecolors,straps,keychains,charmsandscarves.Forexample,thecompanyintroducedreversiblejacketsforitssignatureSelmahandbag,shownbelow.

TheSelma3-in-1handbagSource:MichaelKorsInvestorDaypresentation;

Thepenetrationratesofnewcollectionsincreasedfrom20%forthespring2017collectionto37%forthefall2017collection.Thecompanyestimatesthatthepenetrationrateofnewcollectionsinaccessorieswillgrowto65%–75%byspringof2018.

ReducePromotionalActivity,IncreaseAverageUnitRetail(AUR)Thecompanyhascommittedtohaving40%fewerpromotionaldaysinitsNorthAmericaMichaelKorslifestylestoresandinitspartner/wholesalechannels,andmanagementsaidthatitisseeingAURrisingasaresultofthechange.Thecompanyhasalsoidentifiedthreeitemsthatwillneverbepromotional,itsbest-sellingMercerbag,itsHamiltonbagandtheAccesswatches,which,combined,accountfor25%ofbusiness.Thecompanyhassetfourwindowsoftimethroughouttheyearforbrandwidepromotionsforitselfanditswholesalepartners,andmanagementbelievesthatthisnewstrategywillleadtoflattopositivecompgrowth.

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ModernizetheFleetMichaelKorsismodernizingitsstoresandrenovating100storesglobally.Thecompanyisusinganelevatedflagshipmodelastheprototype,highlightinglifestylecuration.EachnewstoreconceptemphasizesMichaelKorsasafashionluxuryleader.CedricWilmotte,PresidentofEMEA,saidthatthecompanyhasselected20–25storesintheEMEAregionaspartofthemodernizationprocess,andthatitisdiversifyingtheproductmixwithwomen’sreadytowear,footwearandmenswear,asthoseareunderpenetratedcategories.

Overthenext24months,thecompanyplanstoclose100–125storesglobally,whichwillallowittoincreaseprofitabilityandresultinannualizedsavingsof$60million.

MichaelKorsisalsomodernizingitswholesalefleet.Aspartofthisstrategy,thecompanyislookingtoenhancethecustomerexperiencethroughamoreelevatedshopdesign.Thecompanyisrenovatingitsshopswitha“SelfridgesRegentStreet”conceptandoptimizingitsnetworkofshops-in-shopsinEurope.

ChinaRepresentsa$1BillionOpportunityPatrickLee,PresidentofGreaterChinaandSoutheastAsia,spokeaboutMichaelKors’storefootprintinAsia,withafocusonChina.Thecompanyhas111storesin30citiesintheGreaterChinaregion.LeesaidthatChinaisagreatopportunityforgrowth,with88citieswithpopulationsofmorethan5millionpeople.Inthelongrun,thecompanywouldliketoreach200storesinChina,wherethenumberofmiddle-classconsumersisexpectedtoriseto40–50million,andpotentiallyclimbto100million,givingthecountrythelargestmiddle-classpopulationintheworld.

ChinaisabigstrategicmarketforMichaelKors.Managementprojectsthat,withinthreeyears,thebrandwillhaveapresencein335Asiancities,including180Chinesecities.ThecompanyhasstrategicallybeenbuildingitsbrandnameinAsiaoverthepastfiveyears,withflagshipstoresinkeycitiessuchasShanghai,Beijing,Chengdu,HongKong,Taipei,Singapore,TokyoandKobe.


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ManagementsaidthatChinarepresentsa$1billionopportunityforthecompany.RevenueintheAsia-Pacificregiongrewata110%CAGRfrom2012to2017,from$10millionto$409million.ThecompanyistryingtobuilditsbrandawarenessamongthegrowingmiddleclassacrossAsiaandisalsoworkingtoexpanditsmen’sbusinessintoAsia.


CreateEngagementandLoyaltyThroughSocialMediaMichaelKorshasalmost36millionengagedsocialmediafans,up25%fromlastyear.ThecompanyisoneofthetopluxurybrandsonInstagram,with10millionfollowers,anditiscontinuingtobuildexperiencesacrossallmajorsocialmediaplatforms,includingWeChat,Weibo,Kakao,Line,FacebookandTwitter.


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InOctober2017,thecompanywilllaunchKorsVIP,aloyaltystyling,fashionandluxuryserviceapp.Customerswhodownloadtheappwillbeabletochatoneononewithastylisttrainedbythecompany.Userscanalsoget“Michael’s”adviceandrecommendations,andbookluxuryappointmentswithastylistviatheapp.KorsVIPwillalsoofferspecialcustomerloyaltyrewards.Globally,thecompanyhasrolledoutdigitalinnovationsinChina,JapanandSouthKorea.InChina,thecompanyisintegratingitsloyaltyprogramwithitsinternationalplatformsthroughWeChatandWeibo.


ThecompanysaysthatitsAsiancustomersskewyounger(ages25–35)thaninotherregions,andthatitisworkingwithsocialinfluencersinChina,JapanandSouthKoreatoengagemillennials.InChina,YangMi,whohas72millionfollowersonWeiboandWeChat,isMichaelKors’spokespersonfortheMercerbag.


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ChallengesandOpportunitiesManagementdiscussedthemacroeconomicconditionsthatareimpactingtheretailenvironmentandtheopportunitiesassociatedwiththoseconditions:

1. Shiftinshoppingpatterns.MalltrafficisdeclininginNorthAmerica,asconsumersshiftmoreoftheirshoppingtodigitalchannels.ConsumersareabletoresellproductsonlineonsitessuchasTheRealReal,andlargemarketplacessuchasAmazoncontinuetogrowtheirshareofallretailsales.ManagementsaidthatthesechannelsaretakingrevenueawayfromMichaelKors.Inresponse,thecompanyplanstoincreaseitsonlinepresenceandcapabilities,andoptimizeitsstorefootprint.

2. Thewatchmarketisinaseculardecline.MichaelKorsismovingfurtherintothesmartwatchcategoryandispartneringwithGoogleandFossil.

3. Theglobalhandbagmarketismaturing.Theglobalhandbagmarkethasseensingle-digitgrowthrecently.Inresponse,thecompanyplanstorebalanceitsproductmix.

4. Thereisincreasedcompetitioninluxuryhandbags.MichaelKorsisfacingnewcompetitionintheluxuryhandbagspace.Atleastsixofitscompetitorshaveexpandedrevenuesfrom$100–$200milliontomorethan$1billion.ManagementsaidthattheopportunityforMichaelKorsistoleadinfashioninnovationinthecategory.

5. Apromotionalretailenvironmenthasnegativelyimpactedsales.Inthepast,thecompany’sretailpartnershavetakenamorepromotionalstanceinordertodrivetraffic,whichhashadanegativeimpactonMichaelKors’revenue.Thecompanyhasadoptedanewpromotionalcadenceinresponse.

6. Theshiftinggeopoliticallandscapehashadanegativeimpact.TheUSdollarhasstrengthenedconsiderably,whichhascostthecompanymillionsduetocurrencyexchangeimpacts.Governmentchangesandactsofterrorhavealsoimpactedthecompany’ssales.Inresponse,thecompanyplanstoincreaseitsglobalpresenceinbothdigitalandphysicalchannels.


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FinancialOutlookMichaelKorsprojectsthatitwillreturntogrowthby2020throughitsRunway2020plan.Thecompany’splanforimprovingitsoperatingmarginincludesimprovingitssegmentmixbetweenthewholesaleandretailchannelsandexpandingitsgeographicmixinAsia.

FY2018:Thecompanyhasmaintainedthefiscalyear2018guidancestatedinitsfourth-quarterearningscall.Managementseesfiscalyear2018asaresetyeartoshrinkcompanyrevenuestoahealthybasefromwhichtogrowinthefuture.Italsoplanstoreducethenumberofpromotionaldaysby40%acrossthebusiness.

FY2019:Thecompanycharacterizesfiscalyear2019asayearofstabilizingandbuildingmomentumandthetopline.Thecompanyanticipatesthatitsplanforcontinuedproductinnovationwillhelpitsgrowthinfiscalyear2019.Managementprojectsthate-commercewillcontinuetogrowacrossallgeographiesandsegmentsandthatitwillexperienceflatcompsinfiscalyear2019duetothereductioninpromotionalactivitiesandmoreconsistentpromotions.Thecompanyexpectslow-single-digitrevenuegrowth,low-tomid-single-digitEPSgrowthandastablegrossmargininfiscalyear2019.Capitalexpendituresareexpectedtobe$200–$250millioninbothfiscalyear2019and2020,comparedwith$200millioninfiscalyear2018.Thecapitalexpenditureswillbeusedtomodernizethefleet,opennewstoresandinvestinITinfrastructure.

FY2020:Forfiscalyear2020,MichaelKorsprojectsthatallareaswillbegintoworktogether,andthatthecompanywillseepositiverevenuegrowth,positivecompsales,improvingoperatingandgrossmargins,andmid-tohigh-single-digitEPSgrowth.Thetablebelowsummarizesthecompany’sfinancialoutlookforfiscalyears2018through2020.


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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comErinSchmidtResearchAssociate

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017

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takeaways from the 2017 michael kors investor day … · 1 june 21, 2017 deborah weinswig, managing...

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