Luxury Retailers with growing outlet stores should be a cautionary sign for investors that future margins will deteriorate due to weaker brand strength.Michael Kors trades at a cheap valuation with strong metrics in the short term which may allow for excess returns for a limited number of years.Louis Vuitton will maintain a luxury status quo due to their strict inventory and no discounting policies whereas Coach and Michael Kors will in time lose luxury status completely.Ironically, the discounting that luxury retailers Michael Kors Holdings Ltd and Coach, Inc provided customers is the same reason that they themselves will continue to have discounted stock prices. The growth provided by outlet stores is essentially a brand erosion poison that will deteriorate the long-term potential of both retailers. Coach is facing brand perception issues today that Michael Kors will face tomorrow (by tomorrow I actually mean at some point in the next 1-3 years).
There is a difference between value and perceived value. True value is the intrinsic value of the product based on the quality characteristics, how well it serves its purpose, and since this is specific to luxury retail, how well it displays social status. The perceived value is correlated mostly with the brand image. While I have no study to prove this, I guarantee I could take two purses: one luxury brand and one discounted brand of the same quality characteristic and people would, on average, make biased assertions on why the luxury branded one is of better quality.When you discount your luxury product, the perceived value deteriorates and so does your ability to charge a premium. Suddenly, more customers are wearing the same purse, the underlying value has not changed significantly, but the perceived value certainly has. A true luxury goods retailer should never discount their products; especially their flagship products. In fact, discounting is a disservice to customers. Why punish your customers who value the product and are willing to pay full price?
Ross Stores’ customer experience has deteriorated due to very low inventory levels in stores and unattractive displays.TJX is adding more great names to its portfolio of brands and is growing in e-commerce.TJX’s management is superior at managing inventory and assessing and capitalizing on industry trends.After a positive quarter of impressive growth, Ross Stores was hit hard due to management lowering guidance. As of late, it seems as if there is some confidence, but the stock has been trading sideways for the most part. Nonetheless, I believe Ross is doing a good job at hitting expansion targets, but TJX Companies is a better long-term buy and a better run company overall.Let’s take a deeper look into Ross Stores versus its main competitor, TJX. This is one of the only companies that adequately and directly compares to Ross. Others, to a lesser extent, include Kohl’s and Burlington Stores . Ross is to TJX kind of like Burger King is to McDonald’s, but with TJX offering brands a tier above Ross’.Tags: Michael Kors bangles