Will selling in fewer stores help Coach sell more handbags?
Coach has a department store problem — more specifically, a department store discounting problem. That’s the major reason the luxury handbag and accessories company has given for cutting by 25 percent the number of department store locations where its products are sold.
“While we understand that consumers may use department stores for trial and shopping across brands, the high level of promotional impressions created negatively impact our long-term brand health, while generating confusion across channels,” Coach CEO Victor Luis told analysts (via SeekingAlpha) on the company’s fourth quarter earnings call.
Mr. Luis said Coach would cut the total store count where its products would be sold by more than 250. He also said Coach would reduce its markdown allowances “given the high level of promotions” in the department store channel. The brand’s products are sold in Belk, Bloomingdale’s, Dillards, Lord & Taylor, Nordstrom, Macy’s and other department stores.
Coach has been engaged in a brand resuscitation effort under Mr. Luis. The company posted its first quarterly same-store sales gain in three years in North America during the last quarter.
A number of reports have pointed out that Coach is not the only luxury brand where management has concluded that a less-is-more approach is the way to go.
“We will be actively decreasing our exposure to the wholesale channel (products sold to retailers) by reducing inventory levels to focus on a higher level of full price sell-throughs and a lower level of markdowns,” said Michael Kors CEO John Idol on his company’s fourth quarter earnings call in June (via SeekingAlpha). “While this strategy is expected to result in a meaningful decrease in wholesale net sales in fiscal 2017, we believe that it is the right strategy for the overall health of our business long-term as we protect our margins and brand equity.”
- Coach’s CEO Victor Luis on Q4 2016 Results (Earnings Call Transcript) – SeekingAlpha
- Michael Kors Holdings’ (KORS) CEO John Idol on Q4 2016 Results (Earnings Call Transcript) – SeekingAlpha
- Coach CEO to Department Stores: We Are Taking Back Our Brand – TheStreet
- Coach pulls back inventory in department stores due to deep discounting – MarketWatch
DISCUSSION QUESTIONS: Will reducing availability help Coach and Michael Kors protect their luxury brand images with consumers? Will this strategy lead to increases in full-price sales for these and other luxury brands?