Crossbody Bags Are Selling Well at Michael Kors — and Investors Are Concerned

Customers are fired up about the smaller satchels, but that's not necessarily the best thing for the company's sales.
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Eliza Brooke
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Customers are fired up about the smaller satchels, but that's not necessarily the best thing for the company's sales.
A crossbody bag on the runway at Michael Kors's spring 2016 show. Photo: Dimitrios Kambouris/Getty Images

A crossbody bag on the runway at Michael Kors's spring 2016 show. Photo: Dimitrios Kambouris/Getty Images

You might not expect crossbody bags to be the main topic of conversation between Morgan Stanley types and corporate executives at 8:30 a.m. on a weekday, but such is the case when the corporation at hand is Michael Kors

Kors's crossbody conundrum is that small, strappy purses are selling very well, especially among the style-conscious millennials of North America, but they're eating into sales of the brand's larger, more expensive handbags. As one Kors executive explained it on the company's second quarter earnings webcast Wednesday morning, young people "think they've bought a handbag" when they go for a crossbody. The issue is that this trend has been dragging down Kors's AUR, or Average Unit Retail — basically the dollar amount shoppers spend per item. When Michael Kors customers are opting for cheaper bags, overall sales just won't be as robust as they could be.

The Kors team says it's excited about customers' interest in crossbody bags — though it's facing fierce competition from the many millennial-focused retailers that also carry the style, the brand is designing toward the trend, with a good range of crossbody styles on its website — but it's not so excited about the lower transaction value there. (Nor, clearly, were investors.) To that end, the plan is to increase prices on some small leather goods, which the team says have actually been slightly underpriced relative to Kors's competitors, and on some crossbody styles.

Overall, Michael Kors's sales clocked in at $1.13 billion, up from $1.06 billion during the same period last year. In North America, though, comparable store sales dropped by 8.5 percent, and with this report, the brand lowered its financial expectations for the rest of the year. In August, at the end of the first quarter, Kors said it expected total revenue for 2016 to hit $4.7 to 4.8 billion — now, it's looking at $4.6 to $4.65 billion.