Michael Kors, Payless closing scores of stores
Online competition continues to cut into retailers’ bottom line
Online competition cutting into sales
Two retailers at the opposite end of the price spectrum both disclosed plans to collectively close scores of stores, a sign that shows how deeply competition from online sellers is cutting into traditional store-based chains.
At the top of the retail price pyramid, Michael Kors Holdings, which runs the high-end designer fashion chain, said Wednesday it will close 100 to 125 stores. And at the bottom, discounter Payless ShoeSource is asking bankruptcy court permission to close another 408 of its stores. Both chains are plagued by the same challenge — too much competition, mostly from online sellers but from traditional stores as well.
“Everyone is competing for the same customer,” says Farla Efros, president of HRC Advisory, a retail advisory firm. “Little differentiation exists. Pretty much everyone sells the same thing, thus (there’s) an increase in cannibalization among each other.”
Michael Kors’ latest closures come as the once-booming luxury retail sector is struggling. At the same time, the chain has acknowledged it had delivered an underwhelming store experience for consumers. The company had 827 full-price or outlet stores and another 133 licensed stores for a total of 960 worldwide when its fiscal year ended April 1.
Elsewhere among luxury retailers, Coach recently announced a deal to acquire upscale retailer Kate Spade, and Jimmy Choo put itself up for sale.
Tourist spending at U.S. stores is hurting because of a strong dollar, Chinese growth has slowed, online competition is undermining physical retailers and department store sales are lagging.
A Michael Kors spokesperson
declined to disclose a list of store closures or number of job cuts. The company is expected to open new stores in certain strategic locations. Kors stock lost 8.5% of its value Wednesday, closing at $33.18, down $3.09.
Sales at stores open at least a year tumbled 14.1% in the company’s fourth quarter. Total revenue fell 11.2% to $1.06 billion, compared to a year earlier, despite opening 159 net new locations.
The company faces “a difficult retail environment with elevated promotional levels,” Michael Kors CEO John Idol said in a statement.
Then there is Payless ShoeSource, which could nearly double the number of store closures under its bankruptcy plan as the extent of the discount footwear chain’s troubles come into sharper focus.
The company, which filed for Chapter 11 bankruptcy protection in April, is asking a federal bankruptcy judge for permission to close up to 408 additional stores. Taken together, the 800-some locations would represent about 20% of Payless’ total locations worldwide.
Those closings add to about 400 locations the Topeka-based retailer already put on the chopping block when it tumbled into bankruptcy. Payless is privately held and controlled by Golden Gate Capital and Blum Capital Partners.
Payless said it needs to accelerate store closures after efforts to secure lower rent at those locations failed. The company said it had further analyzed its footprint and determined that the latest round of stores had poor sales, physical location or other “specific circumstances” preventing them from being successful.
In a court filing, the company left open the possibility that additional negotiations with landlords could “result in consensual modifications and rent concessions” before a June 8 hearing on the matter.
“While many of those negotiations have been successful and significant savings have been realized, other negotiations have not been as successful,” Payless said in the court filing.