Men’s Business A Key Pillar Of Coach’s Brand Transformation Strategy

Coach Inc‘s (NYSE:COH) woes are directly traceable to two strategic mistakes: firstly, the company relied too heavily on its factory store channel and discounts in order to raise unit sales. Until as recently as fiscal 2014, factory sales comprised nearly 70% of Coach’s total retail business, up from 40% a decade ago. (See: Coach: Divided Against Itself?) This led to a depreciation in brand value as Coach bags became far too ubiquitous to retain the aura of exclusivity required of a luxury brand. The factory sales figure represented nearly 50% of total sales, a percentage that is too high for a true luxury company. Given the easy availability of information on the Internet, and the pre-shopping opportunities of selection that it provides, it is possible that customers who want to buy Coach’s products were foregoing shopping in its retail stores and waiting for the same products to come up at its factory outlets, at lower prices. In addition, frequent flash sales organized on the company’s website also affected its brand image.

Secondly, the company tried to grow its revenues through store expansion. Coach’s new stores were financed through operating leases and as a result the expenses related to them did not affect the company’s cash flow statements. However, most of Coach’s retail stores are located in the inline section of malls, where the company has to pay a fixed cash rental. This meant that the company had a high degree of operating leverage and as a result when sales started to fall it could not cut back on inventory to maintain its margins. Consequently, the company decided to close about 70 stores in North America.

In fiscal 2015, Coach is undertaking a brand transformation strategy to position itself as a global lifestyle brand anchored in accessories. It is re-aligning its products, stores, marketing, and executive management team as part of this strategy. However, a key part of this transformation strategy is a focus on growing the company’s men’s business.  Last year, the company generated about $700 million from the men’s business, or just over 14% of revenues. It aims to grow that figure to $1 billion.

See our complete analysis for Coach

High Demand For Men’s Luxury Goods In Asia

In Asia, men’s bags have a greater appeal for utilitarian reasons. Since Asians commute more often by bus, train, and bikes than by cars, so bags worn with long straps around the body are convenient. Coach has noticed that Chinese men tend to carry a lot more cash and cards in their pockets than men in the West, and prefer to put their cash and cards in bags rather than in the pockets of their pants. Additionally, Asian men are more likely to accessorize than their counterparts. According to Coach’s estimates, males account for one quarter of the luxury accessories market in Asia, and the figure is close to 40% in China. ^[1] Therefore, a significant part of Coach’s expectation of growth in international revenues is the growth expected from the international men’s business.

Coach Debuts Its First Ready-To-Wear Men’s Collection

Earlier this month, Coach debuted its first ready-to-wear collection for men. ^[2]  The collection was designed by Stuart Vevers and retains the same high fashion treatment that the women’s collection launched in 2014 got. The company retained the most successful elements of the women’s collection, such as bomber jackets, shearling coats, and hiker boots, but also showed peacoats with leather accents and classic brown leather jackets. The collection was debuted alongside a number of more risk taking designers. However, this is only likely to boost its appeal among fashion forward consumers. ^[2] Given Coach’s positioning in the middle of the luxury market and the broad appeal of its products, the collection can provide some much needed boost to the company’s top line.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. A Men’s Bag Craze Made in Asia, Wall Street Journal, June 2013 [↩]
2. Coach Debuts Its First Menswear Line in London, Fashionista, January 2014 [↩] [↩]