Following a critic-praised aesthetic revamp under the watch of creative director Stuart Vevers beginning in 2013 and an onslaught of lawsuits aimed at rebuilding the exclusivity around its name and other trademarks, Coach is still working to find its footing on a grander scale. With analysts split as to just how well Coach is faring compared to its rivals and how Coach Inc’s initial strategy of taking its eponymous brand from an accessories producer to a full-fledged fashion hous is planning out, we take a look.
Fixing Things: From Stores to Prices
Since tapping former Loewe creative director Stuart Vevers to re-focus and re-enegerize its classic American brand, Coach has set out to restructure its retail network – inside and out. This has consisted of revamping its retail stores as part of a $540 million dollar plan. As of fall 2014, three Coach locations underwent renovations (Beverly Hills’s Rodeo Drive, New York’s Time Warner Center, and Tokyo’s Shinjuku) with almost two dozen more to be finished before the end of the year.
By the end of 2015, Coach said it would make-over 150 existing stores and open 60 new ones, and by the end of the 2017 fiscal year, its network of brick-and-mortar outposts will have all come under the microscope.
In terms of external stockists, New York-based Coach, alongside the likes of Michael Kors and Kate Spade (the latter of which was acquired by Coach in May for $2.4 billion), has long been associated with department stores. It has, in recent years, however, made aggressive moves to limit its exposure to the troubled department store sector, where the overly-rife dependence on discounting and promotions have become a go-to tactic in order for the Nordstroms of the world to tempt and draw in consumers.
While the department store promotional heyday has – at least in some cases – proven helpful in boosting sales for nation-wide retailers, the trend has wreaked havoc on brands (and department stores’ relationships with brands) and caused consumers to expect deals as the status quo, making it so that they rarely expect to pay full price for a product. (This spring, a First Insight report revealed that 45% percent of American women need to see a markdown of 41% or more to even enter a store).
And brands – which once relied quite heavily on department stores for exposure for their products – armed with the new accessibility garnered from the web, including social media and e-commerce, have taken to fighting back in light of growing competition amongst the nation’s largest retailers and the resulting heavy markdowns.
As noted by Reuters, Coach and other accessories retailers, including Michael Kors, have been trimming sales to department stores in order to sell [their products] at full price through their own stores to help retain the brand’s premium cachet.”
With this, Coach is also working to shift its focus away from lower-priced products in an effort to introduce higher-quality goods, such as monogrammed leather bags. The brand began floating this strategy shortly after the arrival of Vevers, hoping to price itself out of the mid-market, which has, for years, been hugely saturated by the likes of Tory Burch, Kate Spade and Michael Kors, among others, and move up-market by pricing most bags over $600.
Still yet, with the help of Vevers, Coach has been reducing its offering to smaller batches of about 100 styles, a greater share of which have been aimed at residing in the upper-echelon of the market.
No Fast Answers
While “the impossibility of a fast adjustment [has] made the performance of the turnaround hard to be evaluated,” per Seeking Alpha, Coach’s overall strategy seems to be working. “Coach has repositioned its brand to be more premium, moving away from excessive discounting and promotions to selling more at full price,” Neil Saunders, chief executive of research firm Conlumino, told Reuters. “This caused challenges initially, but with new collections, consumers are starting to look again and more of them are now buying in to Coach at full price.”
Labeling Coach a “luxury brand” (a title that does not necessarily seem fitting, at least not yet), the Washington Post recently noted that Coach has nearly doubled in the most recent quarter, to $152 million, as part of the company’s aggressive turnaround efforts. “Coach has become an unlikely comeback story. It has spent the past three years reinventing itself — weaning customers off ever-growing discounts, pulling out of struggling department stores and phasing out its ubiquitous logo bags — in hopes of restoring its cachet,” it stated.
The brand announced that profits were up 85 percent to $152 million compared to the same quarter last year. Revenue rose 6 percent to $1.13 billion, but it was shy of the $1.51 billion analysts were expecting. The decline has been attributed to Coach’s push back against stocking heavily in department stores and partaking in promotional events.
While most analysts have been hard on Coach as of late, Bloomberg’s Sarah Halzack believes it is “still on the right track.” She stated this week, “It is succeeding in restoring that brand’s cachet much in the same way that Ralph Lauren and Michael Kors are. It has similar plans for Kate Spade. And its efforts to build itself into a luxury powerhouse with a more diverse stable of brands is still a sound one, even if sales for the Kate Spade brand aren’t quite what investors had hoped for out of the gate.”
Saunders, recently echoed Halzack’s optimism, saying, Coach “is now back to a position of strength and is held in high regard by consumers. This is a marked turnaround from where it was a couple of years ago.”
And still yet, Seeking Alpha has held that “as it is, Coach should be a good investment in the perspective of a buy-and-hold investor.” It cautions, however, that with increased acquisitions – along the lines of Stuart Weitzman (which Coach acquired in 2015) and more recently, Kate Spade – comes increased uncertainty as to the future viability of Coach, of course.
What – exactly – should we be watching out for? Coach’s “ability to integrate acquired companies properly will be a key factor,” per Seeking Alpha, since Coach CEO Victor Luis has openly stated that this is just the beginning.