Coach: The Year 2013 In Review

by Trefis Team
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Shares of Coach (NYSE:COH) have shown significant volatility this year, reaching as high as $62 in January before declining to $47 by the end of February. Currently, the stock is trading around $55. The main trend witnessed this year was the company’s struggle to maintain its market share in the women’s handbags and accessories market. Weak demand for its products, due to rising competition from brands such as Michael Kors and Tory Burch, forced the company into a transformation of its brand image. Both these companies took  a sizable share from Coach, as its sales flat lined. Coach also continued its expansion into markets outside North America. As we take a look back at 2013, we see Coach repositioning itself in the highly segmented luxury market with its future depending on how successfully it is able to execute this strategy. Below we highlights key events for the company during 2013:

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Brand Transformation

There was a change in management at Coach as it installed a new CEO and a new creative director to oversee this transformation. Coach plans to evolve beyond handbags and small leather goods into a full lifestyle brand for women and men. The company began  diversifying its products to promote sales of other categories. The campaign began in March with a roll out of “shoe salons” in some of its flagship stores to enhance product presentation. This rollout was followed by increased offerings of clothing, watches, and jewelry — all designed to promote customer experience with the brand. It has also enhanced its marketing activities to spread its new brand image among customers. A big step in this direction was the remodeling of its flagship New York store. [1].

The campaign generated significant buzz in the fashion press and in social media channels globally but this buzz wasn’t converted into actual demand and in-store traffic by the end of this year. The in-store traffic is usually a lagging indicator, so the impact of this initiative will only be visible over time. Increased sales through the handbags, footwear and other accessories divisions could represent a significant uspide to our valuation.

International Expansion

Another agenda on the calendar for Coach this year was global expansion. Coach hasn’t been very successful in Europe, with only 20 stores in the whole region. Despite the state of its economy, Europe is a big potential market for Coach: the company estimates that the global market for premium bags and accessories is $34 billion, of which Europe represents $6.5 billion. To go after those dollars, Coach plans to open 10 more stores in Europe by next spring. The company also completed the purchase of their partner’s 50% interest in their European joint venture created with Pepe Jeans.

Beyond Europe, China remains the most important single geographic opportunity for Coach. The company opened at six new locations in Mainland China, bringing the total to 132 locations, including 114 on the Mainland. Chinese sales jumped by more than 35% over the previous year, fueled by distribution and double-digit same-store sales gains. The company is also present in 290 other stores spread across Japan, Taiwan, Singapore and Korea. By targeting the proliferating middle classes of emerging economies such as India, Indonesia, China and Latin America, Coach can expand its international revenues significantly. [2]

Internet Sales

Coach is also expanding its presence online to bolster its distribution. E-commerce sales usually have higher margins than store related sales as the former are devoid of store related expenses. As the consumer continues to respond to the convenience, selection and pre-shopping research capabilities of the online space, Coach can leverage the appeal of its brand image to generate significant sales through this channel. An instance of this was visible in China. Coach’s e-commerce site in China was launched only a year ago and while still in early stages, it has received orders from over 200 cities; 150 of them where the company has no store presence. Similar rewards can be reaped from brand building in other emerging economies, coupled with an online presence. With the rapidly expanding e-commerce business, we expect an increase in internet revenues to improve margins going forward.

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  1. Coach Begins Tranformation []
  2. Coach 2014 Fiscal Q1 Earnings Call []
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