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Coach's Transformation Has Taken Hold With Customers

The brand's next step? Decreasing its department store presence.
Backstage at Coach's fall 2016 show. Photo: Imaxtree

Backstage at Coach's fall 2016 show. Photo: Imaxtree

Coach has spent the past two years working to overhaul its image and return to positive sales growth. It's been a massive undertaking — involving the hiring of a new creative director, worldwide store renovations, a new, higher-end collection and more — but based on Tuesday's fourth-quarter and fiscal 2016 results, the company is beginning to see the light at the end of the tunnel.

Gradually over the past couple of quarters, Coach, Inc.'s sales have begun to improve; and in the fourth quarter, for the first time in three years, North American comparable store sales (referring to stores that have been open for at least a year) were positive, seeing a modest 2 percent spike. Overall net sales improved 15 percent for the quarter and 7 percent for the year. For the Coach brand specifically, sales were up 11 percent for the quarter, flat for the year. (Though, these numbers included the benefit of an extra week of sales in fiscal 2016.)

In addition to the return to sales growth, CEO Victor Luis also feels the company has succeeded in its mission to elevate the brand's perception. He noted during the company's earnings conference call Tuesday morning that Stuart Vevers's new Coach 1941 line was resonating in both Coach's retail stores and in "top specialty stores," and that shoppers were increasingly purchasing the brand's more expensive items (over $400) and less interested in its more accessible (under $300) options. For a company that wants to be seen more as a luxury brand, that's very good news.

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With its cool, fashion-y product in place and customers seemingly willing to embrace higher prices, Coach is now turning its attention to rejiggering its retail strategy. That will include rolling out its more expensive 1941 bag line to all stores, moving from 12 to eight deliveries per year in order to keep successful styles on the floor longer and "better align with the fashion calendar," and restructuring the wholesale business. 

Not unlike some of its competitors, Coach now plans to reduce its presence in overly promotional department stores, too. Luis says it will reduce its department store door count by 25 percent and reduce "markdown allowances," as department store markdowns have negatively impacted overall brand health and confused consumers. Instead, Coach will focus on increasing its presence in "modern luxury doors," or "stores we view as a retail and marketing investment." Luis spoke to this at the Financial Times Luxury Summit earlier this year, saying: "Irrespective of what we hear about the demise of the department store, it's true that consumers do go to specialty stores and department stores to be educated on brands and so it's very important for us to continue to partner — yes, in a selective way — with those players."

Coach will also launch a new line of fragrances with Interparfums in the "coming months," supported by a multimedia ad campaign starring Chloe Moretz.

Coach, Inc. also has some plans for Stuart Weitzman, which it acquired early last year. As was announced this morning, Weitzman, the person, has been replaced in the creative director role by Giovanni Morelli, who previously designed all non-apparel categories at Loewe. Luis pointed to Morelli's experience in handbags and other accessories as a strong asset as he plans to expand the luxury shoe label into a "multi-category" brand that encompasses handbags and other accessories.

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