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Retail

Coach Is Regaining Its Upscale Luster by Dropping Department Stores

Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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November 1, 2016, 3:21 PM ET
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Photographer: Kiyoshi Ota/Bloomberg via Getty ImagesPhotograph by Kiyoshi Ota — Bloomberg via Getty Images
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Luxury is supposed to be about scarcity.

But in recent years, chasing after sales growth, many so-called accessible luxury brands including Coach (COH) have gone after all the distribution they could find, opening shops at hundreds of department stores as well as adding to their own locations.

The result of that ubiquity in many cases has been a damaged brand and loss of control over how merchandise is presented.

Coach, in turnaround mode, is now subscribing to the less-is-more approach. The fashion brand is in the process of exiting some 250 U.S. department stores, to focus on those retailers’ best locations and on its own fleet of stores. And it’s paying off.

Coach on Tuesday reported a 2% increase in North American comparable sales for its most recent fiscal quarter, the second such period of growth after years of sharp declines. Total sales for the quarter rose 1% to $1.04 billion.

“We are pulling back on distribution because I think the footprint we were in was just bigger than where the brand is,” Coach’s North American president, André Cohen, told Fortune.

In July, the company announced it would remove its products from about 25% of the roughly 1,000 wholesale locations where Coach currently sells its goods in North America. It also said it would reduce the markdowns that Coach allows department stores to take, concerned by the high level of promotions those stores are employing to try to stanch their own sales bleeding. Macy’s (M), Coach’s single biggest department store partner, has reported declining sales for six straight quarters. Nordstrom (JAN) has similarly been struggling.

“The constant discounting in department stores was affecting brand perception,” Cohen said.

Ralph Lauren (RL) and Lacoste are among the many brands to express frustration with the barrage of brand-eroding promotions at department stores.

Coach was seduced by the logo craze of a few years ago that had so much of its merchandise festooned with the word “Coach” or letter “C,” as well as the boom in discount factory stores that sent sales soaring. Coach felt that the factory-store surge helped it compete against fast growing rivals like Michael Kors (KORS) and Kate Spade (KATE) during the handbag boom earlier this decade. But that growth came at a cost: Coach came to be seen as a brand for masses attracted to gaudy handbags, rather than as a maker of quality, elegant leather goods with history going back to 1941.

 

 

The company is in the middle of a five-year turnaround plan drawn up by CEO Victor Luis soon after he took the reins in 2014. That has included shutting 20% of Coach’s stand-alone stores, the better to focus on its best-performing stores in key markets.

That plan has involved other steps such as reducing the number of online sales events in its factory store business, and reinventing itself as a so-called “lifestyle” brand, whose offerings go far beyond its staple shoes and handbags to include a wide array of outerwear and apparel. Coach is in the process of remodeling many of its stores, incorporating a sleeker look that is more upscale. And it has become a fixture at fashion weeks to showcase work by its star designer, Stuart Vevers.

At some stores, Coach has opened “craftsmanship bars” to showcase the workmanship that goes into the 75-year-old brand’s wares.

The result: Coach has been regaining some of its old upscale cred, hurt in recent years by many garish and cheap-looking, logo-festooned items. Now handbags that cost $400 or more generate more than half of that category’s sales, up from 30% a year ago. And favorable perception scores are up to 80% now, from 70% a year earlier.

“We are, at the highest levels, moving from the lowest common denominator in pricing to a more innovative, more emotional positioning that provides consumers something they can’t find elsewhere,” Luis told Fortune.

About the Author
Phil Wahba
By Phil WahbaSenior Writer
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Phil Wahba is a senior writer at Fortune primarily focused on leadership coverage, with a prior focus on retail.

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