Coach has been in the news for the past few months. The brand announced its plan to lower inventory in overly promotional department stores. The handbag maker also said it would lower markdown allowances. Coach is essentially trying to move the brand away discounts and outlets and back into luxury. The brand, however, will have to do more than that to become a luxury brand again.
Back in August, Coach released Q4 fiscal 2016 results. The Coach Inc. sales and profits increased by 2% with net sale increasing 15% for the quarter and 7% for the year. The Coach brand specifically had sales increase by 11% in Q4 and flat sales for the year.
That is the result of Coach’s previous plans to get the companies profits back up after a couple of years of declining sales and profits. The company has since hired a new creative director, renovated stores, and launched ready to wear brand Coach 1941.
With the release of the company’s Q4 results, Coach CEO Victor Luis announced plans to improve the brand’s retail strategy. The brand is planning to include its more expensive 1941 bags in all stores, move from 12 to 8 deliveries a year to keep successful bags in stores longer, improve its wholesale business, and “better align with the fashion calendar,” says Luis.
In improving its retail strategy, the brand will lower the amount of bags sold at overly promotional department store. Luis says the brand’s department store count will be lowered by 25% and that the brand will lower “markdown allowances”. The brand will increase the amount of bags sold in luxury stores and stores the brand views as a “retail marketing investment”.
The brand is also planning to launch a new line of fragrances with Interparfums in the “coming months”. Coach Inc. has plans for Stuart Weitzman, a shoe brand the company bought earlier this year.
All of these plans seem to have been working. Yesterday, Forbes reported that Coach Inc. beat analysts’ earnings estimates for the first fiscal quarter. Sales declined, but that was expected given the brand’s plans to lower inventory.
Net income for the company $177 million, which beat last year’s $96 million. Net sales were $1.04 billion at an increase of 1%, but declined buy 1% on a “constant currency basis,” according to Forbes. Analysts forecasted $1.07 billion in sales.
The Coach brand had sales at $950 million, a 1% increase but a 1% decrease on a constant currency basis as well. North American sales decreased by 3% and the brand’s department store sales decreased by 30%.
All that may seem like the brand’s plans aren’t working but, as I said, that was to be excepted. Luis released statement in which he said the company is pleased with its performance. He continued to say, “despite this deliberate pullback, we achieved growth across key financials, including sales, gross profit and operating income, as well as double-digit earnings growth.”
The company’s plans to move Coach away from discounts and outlets is working financially, however, there are more things the company needs to do for Coach to become a luxury brand again.
First, the brand needs to start manufacturing in the United States. Coach’s handbags, which account for more that half of the brand’s sales, and accessories are made in other countries. One bag I have, a “Nolita” wristlet, was made in the Philippines. A “Mini Skinny” wallet I bought a couple of months ago was made in Thailand.
Manufacturing in the U.S. would also let Coach make better quality products. Handbags made in the U.S. and countries like France, Italy, Spain, and so on are usually of better quality. The brand would not only benefit from better quality materials but better quality work as well. That Nolita wristlet from the Philippines is uneven on one corner.
The second thing coach should do is increase the price of its products. That would make them more financially valuable. It would also help Coach go from being a contemporary brand to being a luxury brand.
In department stores like Saks Fifth Avenue and Barneys, products have to be within a certain retail bracket to be considered luxury.
The final thing the brand should do is close all of its outlet stores. Luxury brands never have outlet stores or work with outlets. That not only cheapens the look of a brand but makes people only shop there instead of paying full price when products are new.
Coach might also benefit from not offering discounts and sales themselves. It’s one thing to lower inventory in overly promotional stores but only selling products at full price would make the brand more of a luxury brand.
Take a look at the three major handbag makers, Louis Vuitton, Chanel, and Hermès. They never offer discounts on products and they never have sales. They sale all products at full price until they’re gone. No discounts, no sales, and no outlets.
Coach Inc.’s recent plans to lower inventory and markdown allowances is working financially. The company, however, needs to start manufacturing in the U.S., increase prices, close outlet stores, and stop offering discounts and sales to become a luxury brand again.
So, what do you think? Are there more things Coach needs to do to become a luxury brand again? Let me know in the comments below. Also, don’t forget to subscribe to get new posts sent directly to your inbox and follow me in Facebook, Instagram, and Snapchat.
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