As indicated by typical sales data, the demand from luxury women accessories products of companies in this sector seems to be very weak in US and continuingly declining in the past several years due to naturally decreasing preference and slowing down store traffic

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. The demand for luxury women’s handbag and other accessories products in US market seems to have been weak in the past three years as indicated by the continuingly declining same physical stores of those typical companies in this sector while e-commerce sales have increased fast to offset, to some extent, the decline in mall based stores.

2. International market (China mainly) seems to have been contributing to the general growth in sales and to some extent offset declining domestic sales.

3. Due to fast expansion in new area by opening new stores, companies in this sector have experienced shrinking profitability recently.

4. Downturning trend in the same stores sales seems to slow down its pace after entering 2017.

Causes behind the trend

1. Demand for luxury products should have been fundamentally driven by factors independently with economy or household income. The decline in sale of store may, to less extent, imply a general decline in purchasing power of consumers, but, to larger extent, a natural decline in demand as a result of shifting of preference of consumers and due to less random purchasing as a result of less stores visits.

2. Shifting away from luxury women accessories of preference of consumer in US may be a natural result of social development. The boom in emerging market is as well.

Industry Future

1. Retail industry’s chaos will eventually stabilized as the number of new competitors reaches maximum. Companies will probably find that their profitability cannot come back to previously level and survivors may only be those who can perform well in e-commerce and emerging market.

General Financial Performance of Companies In the Sector

It seems that, based on the typical company data, the demand for handbag and other women accessories in the past three years has been weak and declining for some of brands, primarily attributable to declining store traffic from their own stores and stores of their wholesale clients. The decline reached the lowest in 2016 but seems to be re-bouncing since 2017 as indicated by the slowing down decline in the same physical store sales (  -3%,-5%, and 3% for 2017, 2016, and 2015 respectively) and continuingly increasing online sales.

Companies, facing the unfavourable retail environment, have responded to the slowing down traffic by expansion of business (including acquisition and opening new stores) and lower price.

Expansion in new store in China market have been successfully offsetting the decline in same stores sales of North American market for some of companies in this sector during the same period. However, their profitability seems to be damaged largely due to deleveraging of expenses in new stores.

The typical companies’ gross margins are down to about average 60% in 2017.  The SG&A as percentage of sales (including store occupancy and staffing costs) went up to about 41% in 2017; the typical operating margin went down from 29% to 18% in 2017. Companies’ cash flow thus significantly decreased during the same period.

The typical average stock price/cash flow ratio is about 17.

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