Coach’s (COH) long corporate nightmare is finally over.
The New York-based handbag and leather goods maker reported on Tuesday that comparable sales in North America, its biggest market by far, were unchanged in its most recent quarter. That was the first time since late 2013 they didn’t fall. So far this quarter, they are actually up. Coach’s higher end merchandise, renovated stores, and its closing of weak stores all contributed to this improvement.
Not so long ago, Coach was the hottest story in retail. Riding the big handbag boom last decade, Coach expanded its fleet of mall-based stores and went all-in with outlets. For a while, that strategy worked, propelling company sales to $5.1 billion in 2013.
But that approach came at a cost: Coach came to be seen as a brand for masses attracted to gaudy handbags, rather than the maker of quality, elegant leather goods with a history going back to 1941. The focus on outlet stores and on logos eroded Coach’s upscale image. And then Michael Kors (KORS) and kate spade (KATE) swooped in to steal a ton of market share in a segment that Coach had enjoyed all by itself for years. By 2015, annual sales had fallen by nearly $1 billion, and Coach’s image was in tatters.
Enter Victor Luis, who became CEO just over two years ago, after successfully leading Coach’s Asian expansion. His mandate? Restore the now 75-year-old brand’s upscale aura.
“From the very beginning, our strategy has been about the Coach brand being aspirational and having more cachet,” Luis told Coins2Day in an interview.
Foreshadowing what everyone from Gap Inc (GPS) to Macy’s (M) has had to do in the last year, Coach has shut 100 of its North American doors—or almost a quarter of its fleet, primarily stores in weak malls—to focus on its best stores in the best locations. Coach also drastically reduced its online outlet promotions, as painful as it was to lose those sales and annoy customers who had grown addicted to bargains.
In 2013, Coach hired Stuart Vevers to replace Reed Krakoff as its creative director, as it moved to raise its fashion credibility. Vevers, a winner of the British Council’s Accessory Designer of the Year award in 2006 and an alum of Louis Vuitton (LVMHF), has won a ton of plaudits from the fashion press for his designs as Coach morphed into a lifestyle brand, industry jargon for an assortment that goes beyond handbags to include shoes, dresses, and coats.
Coach now presents runway collections at events like New York Fashion Week. This fall, it will open a flagship location on Manhattan’s luxurious Fifth Avenue near Rolex, Ermenegildo Zegna, and Salvatore Ferragamo stores.
And while there isn’t much Coach can do about the problems of department stores—chains like Macy’s (M) and Nordstrom (JWN) are all suffering from dropping comparable sales in their department stores—the company has been renovating its spaces at its most successful locations.
Coach is playing up its New York heritage and the fact that it is an established brand, things Luis thinks will help it stand out from Michael Kors and kate spade. Last year, it bought luxury footwear brand Stuart Weitzman to further burnish its high-end image. The brand reset has allowed Coach to charge more and not rely on discounts, discounts, discounts.
Indeed, Luis noted that $800+ bags, like the Rogue, Saddle, and Dinky, were selling well. And now, logo merchandise only accounts for 5% of Coach’s sales.
“Our consistency over the last two years is paying off. Consumers who had left us are beginning to reacquaint themselves with Coach and new, young consumers are finding us relevant,” Luis said.
Who says you can’t escape the discounting trap?
