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Fifth Ave – Known For Luxury – Seems More Run Down Than Ever

Fifth Ave – Known For Luxury – Seems More Run Down Than Ever
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This article was originally published by DriveWealth.

Fifth Avenue in New York is considered to be among the best – and most expensive – streets for shopping in the world. As such, it seems that any brand with a “big name” in retail has a location on Fifth Avenue. However, in an age where renting bags and shopping online have become overwhelmingly popular, brick and mortar locations just don’t seem to be cutting it. In the past few years online shopping has boomed into the spotlight resulting in the demise of luxury retail brands – even those with the best locations. Here are a few recent examples to prove our point:

1. Michael Kors

After Wednesday’s earning’s report, Michael Kors Holdings Ltd (NYSE: KORS) became the worst performer of the day on the NYSE. In fact, the stock plummeted almost 15%. Why? The company reported a big drop in its expected holiday sales – compared to previous years – and ranked its sixth quarterly drop in the last seven quarters. This may be somewhat due to the fact that Michael Kors made the decision to terminate most of its distribution to department stores – which typically sell the bags at discounted prices. At an attempt to save the “luxury brand name” of the bags, the decision cost Kors nearly 18% in revenue, and didn’t leave investors feel too luxurious, either.

2. Tiffany & Co.

Last Sunday, the CEO of Tiffany & Co. (NYSE: TIF), Frederic Cumenal, announced  that he would be stepping down effective immediately and would be replaced by Tiffany’s former CEO Michael Kowalski for an interim period. The fine jeweler stated that Cumenal’s work was “not consistent with the brand” – which may have something to do with the fact that total sales for the holiday season were down 4%, and down 15% in the Fifth Avenue store in particular. In response to this announcement, shares of Tiffany also sank (almost 7%), to add to their 9% cumulative nosedive in the last two years – or, since Cumenal took his role as CEO. Accordingly, investors and jewelry fans alike are hoping that some new leadership might be able to turn around sales in time for the next few quarterly reports.

3. Ralph Lauren

In the spirit of CEO troubles, Ralph Lauren Corp (NYSE: RL) also recently announced that its CEO would be leaving in early May of 2017 after a series of debates over Lauren’s business model. Since he took the role in 2015, former CEO Stefan Larsson had noticed the retailer beginning to struggle in weak-performing stores, and had attempted to change the company’s business model. However, Larsson’s uprooting of “the heart of the Ralph Lauren company” didn’t go over so well with Ralph Lauren himself – or with investors, as shares of the retailer have fallen nearly 34% since Larsson’s takeover. But, in the wake of plummeting sales, maybe an overhaul of the company’s current business model is exactly what Lauren needs? We’ll wait and see what Ralph Lauren himself can come up with next.

4. Macy’s

Last, and probably the most drawn out case we’ve seen so far, is the case of Macy's Inc (NYSE: M). If you haven’t looked into it lately, shares of Macy’s have been down nearly 50% since 2015. In fact, after the 2016 holiday season, Macy’s closed  68 department stores (which compiled about 10% of its stores nationwide). While they have been closing their oldest and least profitable locations first, there is definitely something to be said for the termination of 10% of business activity, along with the company’s notoriously low sales. Rumors have it that the Macy’s brand has gone stale. And, in the era of online shopping or new, high-tech stores, plain old department stores might be just that.

All in all, the issues laid out here show significant problems for the mentioned companies (obviously), but also an issue for the retail industry as a whole. They beg the question: who can survive the mass destruction of retail? What does a brand need to do in order to remain current in these modern times? We think it’ll be a very long time before retail shopping as a whole is eliminated entirely, although that doesn’t mean their sales can’t have a serious impact on their stock prices. In light of recent earnings reports, you might consider keeping an eye on your favorite Fifth Ave retailers.

Posted-In: DriveWealthEarnings Retail Sales Management Markets Trading Ideas


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