Michael Kors: Diffused Brand Perception with Diffusion Lines


For my second case study, we were tasked with sharing how a company exploited its consumers through branding and failed to deliver. I asked a friend for ideas, and she prompted me to look into Michael Kors’ history of going from luxury brand to regular mall brand. I had a lot of fun researching this as I remembered watching Michael Kors as a judge on Project Runway but had never been a customer of this brand.

Introduction

Branding is a critical factor for success in many industries, as it uses overt and subtle communication methods to resonate with potential customers to secure sales and loyalty. It is especially important in the luxury goods industry. For fashion brands to maintain a strong reputation within the market, it’s important that they uphold the principles of their brand or risk undercutting themselves and their long-term success. In this case study, I will profile how the Michael Kors brand exploited its customers through diluting its own brand status with diffusion lines.

Michael Kors: Exploitation by Whittling Down its Brand Perception

Michael Kors – the fashion brand, named after its founder designer, has in the four decades since its launch whittled down its brand perception with consumers. At its launch, Michael Kors branded itself as a luxury designer label. But over time, it exploited its fans and early customers by continually creating lower priced products which hurt the brand perception.

It’s common for designer brands (or formerly considered designer brands) to have diffusion lines with lower priced products to generate more sales and build brand loyalty. It’s not direct exploitation to sell to different consumer segments; for example, Toyota has Lexus as its luxury vehicle division, and the two lines share similar models. However, in that case, the two brands are separate with different names and marketing. Michael Kors did not sufficiently differentiate its diffusion lines.

The History of Michael Kors

In 1981, the designer Kors launched his career by selling his collection at the luxury department store Bergdorf Goodman in New York City. In 1984, had his first runway show at New York Fashion week showing his fall collection at the Tower Gallery in the Chelsea neighborhood of Manhattan.

Initially, Michael Kors resonated with upscale customers, including celebrities Aretha Franklin and Courtney Love, thanks to his design philosophy and well-constructed garments. But just a few years into business, like other luxury brands, it opened its total addressable market by creating and selling a lower priced diffusion line. The first for this company was in 1990 with KORS by Michael Kors, which was produced by an Italian licensee company. The collection was carried in just about 100 stores and not heavily advertised (Agins, 2004). It served as a way to make the Michael Kors brand more accessible, but still not readily available to the masses due to its limited promotion. But just three years later, the licensee company decided to stop producing it. That caused Michael Kors (the company) to file for Chapter 11 bankruptcy protection the same year.

The company bounced back thanks to an investment from the luxury goods conglomerate LVMH in 1997. But, once again just a few years after gaining stability, in 2004, Michael Kors launched an even lower priced diffusion line than the first, called Michael by Michael Kors.

The Diffusion Line’s Growth

With the 2004 launch of the diffusion line Michael by Michael Kors, as much as 10% of the Michael line [consisted] of such reproductions of original Michael Kors designs, but with lower priced and less luxury materials, such as a cotton-cashmere blend in place of full cashmere (Agins, 2004). The top priced items from his designer collection cost between $1,000 to $3,000 while the dresses in the Michael diffusion line cost between $99 to $300 – just 10% of the original typical item cost.

The first ad campaign to promote the Michael by Michael Kors line came at a cost of $18 million, a huge increase from their prior highest annual marketing budget of $2 million. The ad campaign was described as having an “all-American, upscale flair” and the CEO at the time reported the goal was for this line to still look hip and aspirational (Agins, 2004) but this time to a demographic that would see that lower price point of $99 to $300 as aspirational. The newer line was made available in about 350 stores.

This big investment in marketing and more wide access to buy the products demonstrates how Michael Kors intentionally marketed to a less affluent consumer base. This is a clear example of the company exploiting its original consumers by replicating the original styles but at a lower price point and quality. In the luxury fashion industry, perception is a huge factor in the value of an item.

With the mass production of lower priced Michael Kors products, original consumers now have a lower brand association with the products they purchased. Where Michael Kors exploited its consumers is through its muddying of consumer perception, by failing to significantly differentiate the brands. It relied on the success from the luxury brand reputation to drive sales for the diffusion lines.

Going back to the analogy of vehicle brands, this would be as if Lamborghini started selling and heavily advertising economy cars that cost just 10% of the cost of its supercar models under something similarly titled to “Lamborghini” rather than starting a new brand. The status of having a full-price supercar Lamborghini would almost certainly be diminished.

So while it’s not inherently exploitative to sell a lower quality product at a lower price than the original, the issue for Michael Kors is that this diffusion line took over the brand’s perception. The market became flooded with the lower priced products, so much so that it permanently changed what people think of when they see the products like purses with their signature “MK” print and hardware.

Backlash to Michael Kors’ Expansion

The backlash to the expansion of Michael Kors would not be immediate. In fact, sales initially skyrocketed thanks to the diffusion line. The Michael Kors brand survived the Great Recession and gained market share. But, as the brand became more attainable, it lost its perception of being elusive and aspirational. 

The company became publicly traded in December 2011, so revenue numbers for 2012 and beyond are available. In 2012, it had $1.3 billion in revenue and reached a peak in 2016 with $4.71 billion in revenue.
But, near the peak of the company’s revenue performance, Business Insider published an article titled, “3 reasons Michael Kors isn’t cool anymore” in February 2015. The article claimed it wasn’t cool because it was too popular, and cited Google Trends that showed declining search volume for the brand’s keywords and excess inventory. Michael Kors also started to be associated with discount and off-price retailers.
In 2017, amidst a period of economic growth as defined by GDP, Michael Kors closed a significant portion of its retail footprint by shuttering 125 stores, which can demonstrate a lack of demand for its goods. Though, Michael Kors was not alone as other fashion retailers closed brick and mortar locations due to the rise of e-commerce. 

Revenue figures show a lack of performance in the market as well. Since Michael Kors (now under Capri Holdings) acquired the Jimmy Choo brand in 2017 and Versace brand in 2018, it’s hard to track exact revenue figures coming from sales of the Michael Kors brand. However, peak sales for the parent Michael Kors company was in 2016, prior to these acquisitions. In 2022, Capri Holdings’ revenue was down 17.55% from the peak.

So even by absorbing two other luxury brands with goods at higher price points than the Michael Kors diffusion lines, the company’s revenue never recovered - demonstrating backlash to the Michael Kors brand. It is important to note some of this reduction in revenue can be attributed to the drop in consumer consumption of clothing and supply chain constraints due to the pandemic, but there is still lasting negative brand perception.

To better understand any consumer sentiment, we can look to the comments section of relevant social media posts. In TikTok videos demonstrating Michael Kors products, there is a recurring theme of negative association. In a TikTok video from 2021, the poster shares a variety of Michael Kors school supplies - notebooks, laptop cases, backpacks, and shoes - under the theme of getting ready for the new school year. These are a selection of some of the comments that indicate negative consumer opinion about the Michael Kors brand:

  • “I feel like MK is the poor’s people’s LV [Louis Vuitton]”

  • “Who is buying Michael kor in year 2021???”

  • “People still buy Michael Kors lol”

  • “MK is such a tacky brand”

  • “My mom wasted $350 on a Mk Backpack for this new school year and by looking at these comments [I know I’m] gonna get criticized in school”

  • “when I see MK I just think of how much that brand is in [Marshall’s] for cheap”

Another video from a different TikTok account posted in February 2023 showcases the excitement at finding a Michael Kors bag available in the off-price retailer TJ Maxx. It had these critical comments: 

  • “They always have them there because no one buys them the first time around”

  • “eh MK does nothing for me but those are cute bags” 

  • “I can’t do MK anymore they been in the outlets too long”

In both videos, the majority of comments praised the bags. But, the critical comments show the lasting negative consumer sentiment around the brand. Some indicate that even if someone likes the appearance of the Michael Kors item, their perception of the brand or how they know others negatively perceive the brand would prevail in their decision to buy or use the product. So that exploits the new consumers who have a positive association with Michael Kors and perceive it as an aspirational brand, because others carry a lower perception of the same item due to their awareness of how Michael Kors was originally a luxury brand.

Ultimately, consumers who purchase any product aren’t entitled to the brand maintaining its status with the public. However, in the fashion industry and world of luxury goods, part of the value of the item is its use as a status symbol by projecting out that someone has a material item worth a certain amount of money. When a consumer buys a $2,000 item from a designer brand, and years later the brand is known for selling items at a drastically lower price point, that lowers the perceived value of the original item. Michael Kors undercut itself to stay afloat through financial trouble, but did irreparable damage with many potential customers within its target market.

Conclusion

Michael Kors as a brand continues to operate after more than four decades in business under parent company Capri Holdings, and its founder is a multi-millionaire and celebrated fashion icon. But, that success has come at a price for its reputation by diminishing its perception as a luxury brand. Though, there is no inherent value in being a luxury brand rather than an economical consumer brand, as luxury branding is based heavily on perception. Regardless of whether a brand has luxury appeal or not, consumers in different segments will purchase products based on a variety of factors and their own personal values, and there is space in the market for brands at differing price points.

References

Agins, T. (2004, August 20). New Kors Line Stars Luxury Look-Alikes: 'Carpool Couture. The Wall Street Journal. Retrieved July 27, 2023, from https://www.wsj.com/articles/SB109295023043896499

Borrelli-Persson, L. (2021, April 19). Michael Kors at 40! A Celebration of the Designer’s Life in
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[Boujeefindsofficial]. (2023, February 5). TikTok.
https://www.tiktok.com/@boujeefindsofficial/video/7196840002708426030
 [By_lily_official]. (2021, August 27). Back to School... [Video]. TikTok.
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Friedman, M. (2018, September 26). How Michael Kors Became a Billionaire, Before His Company Ever
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Lutz, A. (2015, February 5). 3 reasons Michael Kors isn't cool anymore. Business Insider. Retrieved July
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(2017, May 31). Michael Kors aims to shut 125 stores as sales slide. CBS News. Retrieved August 1,
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Prasso, S. (2010, September 18). Michael Kors: Retail's next billion-dollar man. CNN Money. Retrieved
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Talbot, L. (2018, April 19). Back to the Early ’80s With Michael Kors. The New York Times Style
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Hope Dorman