Coach’s (COH) gravy train kept-a-rollin’ for decades, as the New York handbag maker opened hundreds of stores and enjoyed having the market of accessible luxury pretty much to itself.
That helped it go from $38 million in sales in 1979 to $5 billion last year, enough to land a place on the Fortune 500 for the first time, squeezing in at No. 489.
But enter aggressive rival Michael Kors (KORS), and to a lesser extent Kate Spade (KATE), in the last three years, and Coach’s sales in North America have plummeted, imperiling its place in the Fortune 500.
Last quarter, Coach reported a 21% drop in North American comparable sales, the fourth straight quarter of worsening declines in a market that generates almost three-quarters of its revenues. Analysts have long said Coach built out too big a fleet, making it hard to make sure each store was attractive, with the ubiquity of Coach stores hurting its upscale aura. The company now agrees.
“This worked when we were unchallenged,” Fran Della Badia, the head of Coach’s North American retail business, told Wall Street analysts in New York of its store expansion. “This isn’t working anymore.”
So to address that, Coach will close 70 of its 350 or so North American full service-stores in the first half of the fiscal year starting in two weeks. It will shift its focus to better stores and flagships in its 12 best markets, which collectively generate half of its North American sales. Coach is also going to scale back its factory outlet business, with five fewer stores.
The company expects its North American comparable sales to be down by a high teen percentage in the new fiscal year as it shifts gear, and to finally return to growth two years after that.
Coach, blamed by analysts for relying too heavily on promotions and thereby destroying its upscale image, also said it was going to scale back sales events in its full service stores, holding only two semi-annual events.
