Did Michael Kors Sell Out?

This piece contains the opinions of the author, Kristin Bentz, President at Talented Blonde, LLC, that do not reflect the opinions of Benzinga.com.

I started becoming negative on Michael Kors KORS (sadly) around summer of 2014. Trust me—I have more KORS in my closet than shoes—er well, maybe not.

Coming from the retail industry, my calls are typically very early. I’m the “Sixth Sense” of retail. I see things that most analysts don’t. At least before their associates can tell them about it.

I started noticing flaws in the product: cheaper fabrics, weak designs, no linings in garments, and the addition of high margin low cost NYLON handbags—a desperate move that Coach COH made, much to its peril. But the nail in the coffin to me was the bastardization of their logo products and the over-saturation of the entry-level price point.

Put another way, when die-hard clients see their cleaning lady with the same Michael Kors bag there’s a problem. And don’t EVEN get me started on the discounting. Any wounds in the stock price are self-inflicted. Coach is still trying to dig its way out of the same trap and we all know how that’s workin’ for them.

Related Link: Port Crisis Gets Real With McDonald's French Fry Shortage

Handbags & accessories are the gateway drug of retail. Once we lure you in the apparel is next, then jewelry and fragrance, the highest margin product of all. The company likes to refer to itself as “Jet-Set Luxury,” yet by getting greedy, I believe they are inadvertently sullying the very cache they tried to create.

Ralph Lauren  RL has been a master at protecting the integrity of his brand extensions from Polo to Purple Label all the while cultivating the aspirational lifestyle that is his namesake.

I’ll get to him in my next missive...but clearly Michael Kors is losing market share to brands like Ralph Lauren, Tory Burch and by far his biggest rival to watch in my opinion: Vince Camuto. Below is some chart porn illustrating KORS performance against the Bloomberg Luxury Index:

A Wall St. darling for some time, the stock did get a nice pop when Draghi announced a $1.3 trillion floor under the German DAX, but as you can see below, Michael Kors never rebounded along with the German market. On its last earnings call, the company noted the slowing traffic in the U.S., and looked to the EU and China as areas for expansion. Clearly, the EU ain’t gonna do the heavy lifting here.

But What About CHINA, You Say?

The company  (and sell-side analysts--) is making a huge bet that China will be a source of expansion for the brand—they have under 50 retail doors currently.

But, there is a perfect storm of issues brewing from China’s crackdown on luxury goods purchasing, to a strengthening dollar, sagging market and the dangerously close risk of losing its perception as a true American Luxury brand that could prevent the Chinese panacea the company is pursuing.

Disclosure: Author holds no position in any of the mentioned equities.

Image source: Nic Taylor of Flickr