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Coach Is Selling Pricier Handbags as It Readies Itself for Another Acquisition

The company's transformation into an American luxury conglomerate is gaining speed.
A look from the Coach 1941 Fall 2017 runway show. Photo: Imaxtree

A look from the Coach 1941 Fall 2017 runway show. Photo: Imaxtree

Over the past three years or so, Coach has undergone a significant transformation to elevate its brand image with the hiring of a new creative director, a New York Fashion Week time slot, and redesigned stores and to lessen its dependence on department stores that are quicker to discount its goods. With the opening of an impressive new Fifth Avenue flagship, an undeniably cool 75th-anniversary runway blowout and a collaboration with Rodarte this year, the brand appears to have achieved the "image" part of the turnaround, but has that translated into more luxury consumers shopping in its stores? Signs from Coach, Inc.'s third-quarter earnings report point to a gradual "yes."

The company said Tuesday that it was selling more over-$400 handbags than ever before; for the first time, they made up over 50 percent of North American handbag sales. The pricier styles within its 1941 collection were in particularly high demand. The brand is also seeing success with its strategy of pulling out of department stores — to date it has reduced its department store door count by about 25 percent or 250 locations — to reduce discounting and redirect sales to its own stores. Comparable sales in those directly operated stores increased 3 percent in the third quarter, and the number of days it saw items on sale were reduced by 35 percent. It hasn't totally dismissed wholesale, though: Thanks to its more fashion-y 1941 line, its gotten into more top-tier North American specialty stores.

Still, the pullback from department stores, coupled with calendar shifts, resulted in an overall 4 percent decline in sales for the quarter at Coach brand. Net sales at Stuart Weitzman increased 1 percent.

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Coach, Inc. CEO Victor Luis said he expected things to look up next quarter, predicting a double-digit sales increase for both the fourth quarter and the year. He also has very high hopes for the brand's Selena Gomez partnership, which will include a new (under-$500) handbag design for fall, a coinciding fall ad campaign and subsequent spring 2018 ad campaign. He's already excited about the "very high engagement" he's seen with her first two Instagram posts about the collaboration, which received over 5 million and 6 million likes, respectively.

Another exciting prospect for Coach in what could be the not-too-distant future is an acquisition. Rumors have swirled over the past few months that it is in talks to acquire Kate Spade; while Luis said nothing to confirm those rumors, the company has taken a lot of steps recently to ready itself to bring another brand on board, including creating a new executive leadership structure that Luis said would support "Coach, Inc.'s evolution as a customer-focused, multi-brand operation." That included the promotion of Ian Bickley, currently President, International Group for the Coach brand, to the new role of President, Global Business Development and Strategic Alliances for Coach, Inc.; and the appointment of Joshua Schulman to the newly created role of President and Chief Executive Officer of the Coach brand.

Asked during the conference call for specifications on what types of brands Coach, Inc. might be looking to acquire, Luis said only that they're interested in a "healthy brand" with good "consumer perception," and that they're "not looking for brands that have lost their way or need to be completely repaired." According to WWD, in addition to Kate Spade, Coach might be eyeing the more luxury-positioned Bally and Jimmy Choo, as well.

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