Michael Kors fashion watches decline faster than its smartwatches grow

Fossil Group and a plethora of social media and reality TV stars came into alignment in 2014 to make Michael Kors the hottest fashion watch of the decade.

Since then, Michael Kors fashion watches have continued to ride high in the chart of the bestselling women’s models, but decreasing volumes and an inability to raise prices have made it a fading force.

Fossil Group knows it has to move with the times for its licensed watch brands, and bets that the current generation of customers will want smartwatch features and digital connectivity on their wrists as much as the previous generation wanted Swarovski crystals.

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Results from Fossil Group and Michael Kors Holdings Ltd this week suggest the strategy is partially working.

Global sales for Fossil Group declined from $597 in the second quarter of 2018 to $577 million. A massive loss of $344 million in Q2 last year has been whittled down to just $7.8 million in the same three months of this year.

Kosta Kartsotis, chairman and CEO for Fossil Group told investors that the results exceeded previous guidance thanks to the growing success of its smartwatch and hybrid connected watch strategy along with better cost control.

“The transformation of our business continues to yield positive results for Fossil Group, as we reported strong momentum in connected watches, expansion in gross margin and a reduction in expense, which led to operating results that surpassed our guidance,” the Fossil chief said.

Fossil Group does not break down its results by brand, but a first quarter of its 2019 financial year from Michael Kors Holdings sheds a little extra light on the challenge to grow sales of connected watches as analogue fashion watch sales continue to fall.

Total revenue for the fashion house increased 26.3% to $1.20 billion, including a $172.7 million contribution from luxury shoemaker Jimmy Choo.

But MK Licensing revenue decreased 4.8% to $27.5 million. “Continued positive growth of Michael Kors Access smart watches was not enough to offset the continued decline of fashion watches,” the company says.

In a conference call with financial analysts, Michael Kors chief executive John Idol said he hopes a new smartwatch offering heart rate monitoring and the ability to make payments via Google Pay will eventually be able to offset the declines in their fashion watch business.

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