While most of the big design houses have been reporting sales growth for the first quarter of 2014, Coach reported this week that shares in its company are falling fast after a more-than 20% comparable sales drop in North America. Outside of the U.S., things are better; Coach’s results were much stronger, with international sales growing 14% to $441 million. On the heels of such financial disclosures, Coach revealed that it is taking a page from Louis Vuitton's book and upping prices. But is that going to cut it for the brand whose appeal seems to have been fading for quite awhile now?
The New York-based brand is not just raising prices, it is changing its whole strategy. We have seen the signs. The house has been re-vamping its advertising (hey, Karlie, Liu Wen, Arthur Gosse and FREJA BEHA ERICHSEN). They brought in an amazing new creative director, Stuart Vevers, and began cutting out that god-awful “C” print that long-dominated its offerings. Last but not least, the legal team at Coach started aggressively policing its trademark (think: 100+ trademark infringement lawsuits last year). But there's even more to it than that …
With the help of Vevers, the brand is reducing its offering to smaller batches of about 100 styles, a greater share of which will be "upmarket." The company is also attempting to make it more difficult for consumers to find its goods at discount. Coach has reportedly stopped selling merchandise on third-party flash sales sites, such as Gilt, and has limited access to its own online flash sales channel.
Essentially, Coach wants out of the mid-price market, which is currently being dominated by Tory Burch, Kate Spade and Michael Kors. It's reportedly going to do so by pricing most bags over about $600. But, you have to wonder: Is upping prices really a sustainable answer to a brand's problem? I'm not so sure. I'm not sure its a realistic answer in Coach's case or in the others, and there are a few. Most notably, Louis Vuitton. While it appears to be working pretty well for Vuitton, we only have a very small window from which we can currently judge.
The Paris-based brand, which initially announced a revamp of its collection last year, including two separate announcements of plans to up its prices (one in February and another the following November), reported increased sales this past quarter. That increase was a bit of a long time coming. For the leading moneymaker in its Fashion and Leather Goods division, LVMH registered a 7% sales increase in 2012 for Louis Vuitton, compared to a reported 16% in 2011. Growth was similarly slow in 2013. In one sense, it could't really get too much worse. In another, it is what Louis Vuitton put into it.
What seems to have worked for Louis Vuitton, and we are going to assume that the brand's increase in growth is not just a fluke, is that the brand didn't just increase its prices. The brand began shifting towards higher priced accessories due to higher quality materials (think: moving away from canvas, and focusing on its leather bags, such as the $4,000 calfskin leather Capucine bag - which reportedly spawned waiting lists, and then there are the final Marc Jacobs bags, a handful of which are made alligator skin and boast hand-appliqued feathers, Swarovski crystals, etc.). Thus, Louis Vuitton's price increase was not an empty promise. A increase in price with nothing to show for it. The brand is actually delivering garments and accessories somewhat worthy of the cost. And yes, according to recent reports, the house is even limiting its garments (more about that here). Lucky for Louis Vuitton, it has a history of luxury positioning, which is hugely helping it pedal $5,000 bags. Whether Coach has this flexibility, its a bit less likely.
Having said all go this, it is interesting, I think, to reflect on a recent statement from Axel Dumas, Hermes CEO, who spoke not only about exclusivity but more importantly, about maintaining it, said: "I don’t think the price point is the relevant measure of our exclusivity. I am a little bit always taken aback when I hear, '"We want to be more exclusive so we’re going to sell more expensive bags.'"
Now, sure, there is an entire world between Hermes and Coach (and I'm probably going to fashion hell, where everyone wears Nasty Gal, for including them in the same sentence), but there is something to take away here. Quality simply has to be at the center of a brand's revamp, as does a reasoned amount of discretion in terms of the level of production. Ideally, brands will always have these things in mind in order to avoid the need to fall back on a strategy to regain exclusivity in the minds of consumers. Upping prices, limiting sales, filing lawsuits, and re-vamping your advertising campaigns is not a fail-safe solution.
Styles change, sometimes favoring logos. Sometimes shunning them. Currencies fluctuate. Demand changes from time to time, as well. Meeting challenges by consistently producing quality goods and abstaining from over saturating the market to make a quick buck (or a quick billion in Louis Vuitton's case) seems to be Hermes strategy and one that brands can learn a thing or two from.