Image Propels Coach’s Growth
Coach has built its handbag and retail business around an upscale image. That image has brought record numbers of consumers into the company’s retail stores and factory outlets to buy their own portable piece of Coach luxury.
The company’s top and bottom line results have been so outstanding that Coach CEO Lew Frankfort has announced the company will increase the number of new stores it plans to open this year from 30 to 40.
“We’ve never been more excited about the potential for the Coach brand,” he said
But, is Mr. Frankfort pushing ahead too quickly? Will ubiquity or other factors lead to a devaluation of the Coach brand?
A report on BusinessWeek.com suggests there is a potential for such a problem at Coach. A close look at the company’s sales, the report concludes, shows retail revenue increases came primarily from Coach’s factory outlet stores that stocked discounted merchandise. Sales at Coach outlets were up 33.4 percent compared to the 20.8 percent registered by its retail stores.
In recent years, Coach has departed somewhat from its upscale niche with the introduction of some more affordable items, such as current season purses sold at under $200.
While $200 purses are outside the budget of many Americans, the report said items in this price neighborhood have brought more middle-income consumers to stores to buy Coach brand accessories. Items sold at the company’s factory outlets, sometimes at half the price charged in its retail stores, bring in even more shoppers.
While it is difficult to suggest from the current numbers that the Coach bubble is about to burst, Robert Passikoff, CEO of Brand Keys, offers a caution. “Ubiquity can be the death of a brand. You need to be very careful when you expand.”
Discussion Questions: Do you see Coach in some danger of devaluing its brand? Are there other brands you can point to that have become devalued as a result of expanding their retail presence too quickly, making pricing changes, etc.?
There is always the risk of diluting a luxury brand’s equity with too much retail presence. However, Coach doesn’t have that many stores in the U.S. so far to be immediately concerned about an overextension. There are still a few markets nationwide and certainly worldwide where a Coach retail presence does make sense.
Additionally, their new higher-end “Legacy” brand (currently being sold at selected Coach boutiques) that serves as an entry into a higher echelon of the luxury market, could be a candidate to convert existing or future Coach-branded boutiques if the Coach name becomes a bit too popular for the mid-to-high-end crowd.
Mass distribution with a high-end cache can ruin a marketing effort if not handled correctly. General Mills ruined the Izod brand by trying to broaden its distribution. Forty more stores in the U.S. sounds doable. I would be more concerned about where Coach is on the fashion curve, as it is becoming the darling of the pre and early teens.
Any savvy female shopper knows what Coach bag is hot on 5th Avenue and what styles are being liquidated at the Factory Store. There aren’t many seasons that the average woman doesn’t fall in love with one of the neat new styles in the store window! Regardless, the bag is seen as a status buy and a “treat” for the woman who purchases it. Because of this, many of us buy from both stores, as Coach is a brand that promises–and delivers–quality.
The other fact is that anyone that wants a Coach bag can get one at a discount on eBay (do a search there and you’ll be blown away by the amount of inventory available). Why not ensure that they make it easy to buy direct in the Factory store and counter this as much as possible?
The one thing that did disappoint me as a loyal Coach buyer was that they discontinued their “refurbish” program that allowed buyers to mail their bag in to be spruced up. It was good peace of mind to spend $400 on a bag and know that I could send it if it started looking shabby. This was also a good tactic to ensure that buyers purchased full price at the store. I suppose they wanted to motivate me to buy a new bag instead of polish mine up but it actually de-motivated me to purchase with them at all.
While the outlets allow Coach to move more overall volume by offering access to customers willing to make the drive who otherwise would not be able to own the merchandise (which lends itself to the most powerful demand driver—peer envy!), Coach continues to expand their outlet presence.
This puts them in danger of alienating their high-end clientele who may think access to Coach merchandise is too easily acquired. The situation is worsened by the overabundance of imitation merchandise, the proliferation of unauthorized resellers and resellers offering credit terms.
All considered, the potential exists for longer-term brand equity erosion and a decrease in interest from their higher-ticket item purchasers. However, the brand is strong and I agree that their “affordable luxury” presence is just as strong. I suppose there’s more margin in key fobs than luggage anyway…. 🙂
Decreasing sales because of a tarnished image should not be Coach’s primary concern. The difference between 30 stores and 40 stores is unimportant. However, the ability of the company to continue to provide valuable products at a perceived premium, is the key to their success. The best path is to continue doing what they have been doing while controlling growth to reflect a quality retail and brand experience in the store. This is the difficult question that Coach has to address each time it opens a store, regardless of whether it is their 30th store or their 300th one.
Coach does a Great job with its brand and its new offerings and stylings and YES any savvy women knows what’s hot and new and what’s being “sold off,” however, a lot of “just” middle class women ALSO know of the Coach quality and are HAPPY to be able to afford an offering at the factory store that may have been discontinued or last years’ mode–the quality is STILL there. 40 stores is not too many and the market can easily absorb that. They need to keep doing it right and their Legacy line also holds great potential for them. They can provide affordable Coach luxury as well as having something more exclusive for the well-heeled shopper. They are in a great place currently. I also agree that their own stores these days, can and do provide a much better experience for showcasing whats available as well as knowledge of the line and what accessories can be had.
I would agree with Richard that Coach isn’t anywhere near saturation. Personally, I think Coach is a great example of how to balance the different channels, especially their outlet stores. What I appreciate most is that their in-store experience in the outlet stores is as good as their full-price stores. So many retailers think that because the store is an outlet store, it is just about putting product on the shelves. Coach’s outlet stores, like their full-price stores, are staffed with knowledgeable and helpful sales people. Because of this, these new stores not only create sales but also new customers.
How should we coach a successful Coach from the sidelines? Very carefully. With Coach’s current strategy, they have potential on both the upside and the downside, but I’m inclined to think they know what they are doing in the “affordable luxury” handbag market.
Coach has done a wonderful job of creating well-designed, well-crafted bags that appeal to discerning women who aren’t slaves to labels. A tough but profitable niche that they have brilliantly exploited at a time when designer “it” bags are enjoying a bit of backlash. In that regard, Coach reminds me of more upscale Tod’s; another company that is enjoying exponential growth on its own carefully-measured terms.
It bears calling out though that Coach isn’t just making bags and slapping “affordable” price points on them, they are masters at designing into price points by working with alternative materials, creating smaller sizes, etc. without sacrificing overall aesthetics.
The market for free-standing Coach stores through the U.S. and overseas (full-price and outlet stores) is not near saturation, and 40 new stores won’t push the envelope. The strategy of its own stores also helps Coach take greater control over the merchandising of its own product; its traditional department store base continues to consolidate, struggle with comp sales and focus on private label merchandise.
Coach has positioned itself as “affordable luxury” to an aspirational shopper, not at the high end of the leather goods market but with a definite quality perception. The Coach-owned stores do a better job merchandising categories like wallets and keyfobs than most of Coach’s department store accounts, so it’s a great way to introduce that aspirational customer to the brand. And–most importantly–Coach has done a great job over the past few years on design, trend and merchandise content while staying true to its vision of the brand.
The handbag category is red hot. Margins are good and pricing is strong. Why not take advantage of the situation? Ralph Lauren’s brands are sold in conventional company-owned stores, company-owned outlet stores, and department stores. Ralph Lauren has been able to grow an upscale brand well beyond any boundaries of “exclusivity.” In its own way, Coach has similar healthy growth potential.
First, outlet stores don’t hurt high-end consumer product business. Such stores serve as a reward to these outlets’ brand loyal consumers that desire, but can’t afford, a non-defective product.
Ironically, there is a definite parallel with the meandering Wal-Mart business direction, and the many Coach-type businesses! The experts worried about Wal-Mart and its current consumers’ spending during the Holidays. And then, some of these same experts floated the question: “If Wal-Mart dominates a good portion of the world’s sales and profits, will there be an economic downturn?”
The middle income and above shoppers or the non Wal-Mart consumers have spoken with their pocketbooks to these experts.
We don’t live in a mass market selling world any more–as some of us still express. The world of selling–or better consumer marketing–is product and consumer segmented! Wal-Mart picked its target audience/shopper, and Coach, Macy’s etc. did likewise.
Interestingly, WM, Coach, Macy’s, Starbucks, etc. strategically developed their marketing strategy for their respective businesses, and target audience, as well.
WM picked price and efficient operational procedures (i.e. cost reduction in the business) and a non consumer marketing direction. Ouch! And now, WM is paying the price, in more ways than one!
The other previously mentioned companies selected consumer marketing principles to include a superior quality shopping experience, to advance their shopper loyalty and business results.
So what business will be the best? Mass selling business to the low income, or the consumer marketing driven company, with a better targeted audience, and non price marketing strategy? Hmmmmmmmmmm
I really believe “always respect the label” and that means don’t become too available or you will suffer from the “Pierre Cardin disease.” If Coach also starts making them in China (which I don’t know if they do), it’s the kiss of death IMO. Gucci became very common in the 80s; it had no snob appeal and it wasn’t until Tom Ford was hired on that they got cred and became fashionable again.
I believe that Coach has a tough road ahead of them. Their products are now too main stream and it’s cheapened the brand! The upper end client they previous targeted is alienated when everyone has a Coach bag. It doesn’t do much for the aspirational qualities of product either. When their products are sold at mass warehouse discounters such as Sam’s Club or Costco (go to either and you’ll see the Coach bags) it just angers the consumer, but more importantly the other upper end retailers who feel they are being sold out by Coach not only on price, but on what drives people to their stores as a “destination.” I’d expect higher end retailers to slowly move Coach out of the showcase and focus more higher end bags that aren’t as commonplace.