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A model poses for a selfie backstage before the Michael Kors Spring/Summer 2016 collection presentation during New York Fashion Week in New York, September 16, 2015.
Reuters/Carlo Allegri
Michael Kors is preparing for more of this.
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Michael Kors finds a lifeline online

By Marc Bain

The handbag bubble seems to have popped: For a variety of reasons, Americans just aren’t buying purses and bags like they used to.

But this morning (Feb. 2), US handbag maker Michael Kors saw shares up 17% in early trading. The brand had reported earlier that sales rose more than 6% to $1.4 billion for its recent quarter, which included the 2015 holiday period. 

While far from the more than 50% growth Michael Kors enjoyed in several quarters following its 2011 IPO, it’s still better than expected. Michael Kors and other affordable US luxury brands, such as Coach and Kate Spade, have been hurting, especially as Americans show less willingness to pay full price for their bags. But the company said it found sales in a couple of places, including new store openings, and most notably, online.

As Michael Kors’s earnings press release noted, e-commerce is one of the primary drivers of new retail sales, while comparable store sales fell 0.9%.

The company didn’t break out the percentage of online sales, but it’s been investing in digital operations, and brought its e-commerce operations in-house in 2014. (It was previously powered by Neiman Marcus.) In this same quarter last year, online sales rose 73% as a result of that decision, and though they accounted for just 7% of its sales at the time, the company expected that number to increase significantly. Indications are that it may already have.

As CEO John Idol said on a call with analysts, Michael Kors has been using digital and social media to extend the brand’s reach and drive sales both in stores and online, and it’s working. Digital research firm L2 describes Michael Kors as having has one of the most effective digital approaches in fashion. It outperforms every brand but Louis Vuitton in the number of interactions it gets per post. It’s also unique in that Michael Kors’s mobile site tells users where the nearest physical store is, helping drive foot traffic.

These moves are important for a brand that investment bank Piper Jaffray estimates does nearly half its sales in US department stores. Department stores have been struggling for years amid declining foot traffic and a shift to online shopping, especially on Amazon, which may soon become the largest fashion retailer in the US. Without these digital efforts, Michael Kors’ earnings might have looked much worse.

Idol said the company is now “taking steps to enhance [its] mobile shopping experience,” and expects to see results in the coming months.