In a recent story from Bloomberg news, Michael Kors (MK) is heading down the path of no longer being a growing brand name in the fashion industry. The luxury goods maker missed its projections for the third quarter and is now losing its stakeholders. In a Bloomberg article, the CEO of MK, “John Idol said in August that profitability would decline this year because an experiment to bring in fall products earlier in the year didn’t work.” Another reason Michael Kors isn’t doing so well is because other retail stores are competing on discounts. (Bloomberg)
From the book we learn that in order “to increase sales, many companies offer quantity discounts to their customers. A quantity discount is simply a reduced price for an item when it is purchased in larger quantities.” (Heizer) Michael Kors doesn’t seem to want to play along with this idea. In the Businessweek article, MK says they won’t be reducing prices this holiday season, “just so everyone can have find a python-fringe tote or fur trimmed parka under the tree.” But with the decline in profits, wouldn’t you want to sell at a discount and get your inventory out the door? And missing their projections means they have more inventories in store than they should have and MK ends up having an over supply of inventory.
If Michael Kors continues to miss its projections and if they don’t do as well as they expect for the holiday season then their inventory will continue to grow and a brand like Michael Kors cannot risk missing projections because of the costs of the goods and the cost of holding it as inventory. As we know holding costs, “the costs associated with holding or “carrying” inventory over time” (Heizer), also come along with more costs such as storage and interest on storage.
Michael Kors states that they will not reduce their prices for the holiday season even though they are seeing a fall in sales. What do you recommend for the brand to do in order to boost up sales? Do you think sales will pick up because of the holidays?
Heizer, Jay, Render, Barry. Principles of Operations Management: Sustainability and Supply Chain Management 9 ed. Boston: Pearson, 2014. Print.