Business Strategy and Outlook| David Swartz |
Capri is led by Michael Kors, a major brand in the attractive mid-tier handbag market. However, we believe it lacks the brand strength to provide an economic moat for the company, rating poorly on the criteria that Morningstar uses to evaluate luxury brands, such as conspicousness of consumption, pricing power, and control over distribution. Powered by store openings and retail expansion in the 2010-15 period, Michael Kors became one of the largest American handbag producers in sales and units. However, its sales have declined from peak levels due to markdowns at third-party retail, store closures, and weakness in some categories. While Capri has successfully reduced distribution of the label to limit discounting of its bags, it now faces challenges such as high shipping costs and virus-related store disruptions in China.