Coach's High-Fashion Transformation Hurts Short-Term Sales

Despite a first quarter sales dip, Coach says everything is going according to plan.
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Dhani Mau
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Despite a first quarter sales dip, Coach says everything is going according to plan.
A fall 2014 ad starring Banks.

A fall 2014 ad starring Banks.

We've been covering Coach's transformation into a more high-fashion, modern luxury brand for a while now, from the hiring of Creative Director Stuart Vevers, to the Steven Meisel-lensed campaigns, to revamping its stores. But it was not until Tuesday that Coach posted the first sales results since the new product hit stores for fall 2014.

Sales dipped 10 percent in the brand's first fiscal quarter of 2015, a little more than the 7 percent decline it saw last quarter. Total North American sales went down 19 percent, while North American same-store sales, specifically, fell 24 percent, though this was better than analysts' predictions.

Coach says these results were in line with its expectations, and that the decline in sales is related to the brand's decision to pull back promotional activity. The brand's restructuring, and introduction of new products, has also likely hurt sales in the short term, but the company says that everything is going great with regards to this transformation. “The launch of Stuart’s inaugural collection in September in combination with our Spring 2015 New York Fashion Week presentation are driving Coach’s fashion credibility and relevance with new and existing customers," said CEO Victor Luis in a statement. "Our layered and targeted marketing campaigns are also creating buzz and excitement around the brand.”

In a conference call Tuesday morning, executives said they were pleased with the performance of the new fall 2014 product, without going into many specifics. However, they did say that more expensive handbags — specifically those in the over-$400 category — performed exceptionally well. Customers are also favoring simple leather bags over those with logos. Overall, the Ryder handbag, the Apollo sweater, shearling coats and urban hiking boots have been standouts. One executive also mentioned feedback from store employees that they were seeing new, more fashion-forward customers coming in and buying multiple products.

Currently, Coach is focusing on closing some stores, while reopening others in the brand's new retail concept. This upcoming quarter, as it encompasses the holiday season, will be an important one.