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Coach's sales in a slump, but hope remains for the retailer

By Kristopher Fraser

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Retail

Coach was once a symbol of simple American luxury. With leather goods at a fairly accessible price point, ranging anywhere from 70 to 150 dollars for a wallet, to anywhere between 350 and 900 dollars for a handbag, they were practically a rite of passage into the realm of luxury leather goods. Lately, however, the company has seen a steep decline in revenue with a decline of 18 percent in the first half of 2014. In 2013, the brand hired Stuart Vevers, who had design credits at Mulberry and Loewe, to be their Executive Creative Director.

This was part one of Coach’s plan to turn their brand around, but with sales still declining it is clear that their plan to revolutionize Coach into a highly-desirable must-have luxury brand is far from over. One of the main reasons for their continuous revenue decline has been store closures, with the brand closing 70 North American stores last year. With North America being their biggest market, the shuttering of 70 North American stores was sure to put a major dent in Coach’s number. In addition, in 2014 the brand also offered far fewer promotions than before, so for those who were holding out and saving up with dreams of that Coach bag going on sale they had fewer chances to catch that sale than ever.

In 2014 Coach had the misfortune of being the worst performer in the S&P 500, with shares in their company dropping 36 percent over the past year, although there are days where they may pick up a percentage point or two. One of Coach’s biggest problems is that it is continuously losing ground to competitors such as Michael Kors and Kate Spade. While Kate Spade may have just shuttered their doors on labels Kate Spade Saturday and Jack Spade, their primary label, Kate Spade New York, saw a 43 percent increase in quarterly revenue last year.

Meanwhile, competitor Michael Kors has plans for global expansion, with stores to open in the Asian market. Vevers hopes to get Coach up to the par with other luxury competitors, and one of his first steps toward doing so was having Coach show their fall 2014 collection at New York Fashion Week. Coach recently made an appearance at London Men’s Fashion Week, where they showed off a collection that showed how serious they were about turning Coach into a real luxury brand, with shearling coats, lots of leather, and a more classic menswear aesthetic, the likes of to be rivaled by Brook Brothers or Paul Smith.

While the collection is months away from hitting stores, it gave promise for Coach, as the collection was met with general positivity, and people noticed the new direction that Coach would be going in. Coach’s primary goal for 2015 is to attract the bigger fashionistas to their stores. Their 3720 square feet flagship store at 79 Fifth Avenue was revamped in 2013 to be separated into multiple rooms, in addition to the 12 foot LED display which showcases the brands most recent runway shows.

Despite Coach’s overall abysmal sales numbers, shareholders and investors still have plenty of faith in the company due to the success of the stores that are surpassing expectations. Stores like the New York City flagship, and all other stores remodeled with Coach’s new design concept are continuously meeting sales goals, and out-performing expectations. Despite the shuttering of its 70 stores in 2014, Coach intends to open approximately another 50 stores globally in 2015 with the new design concept.

The potential for success is definitely there for them to succeed with the repositioning of themselves as a global modern-luxury brand. 2015 could be the year Coach really begins to turn things around. Paul Swinand, equity analyst at Morningstar, was even quoted saying that Coach, “has developed a narrow economic moat through a brand that enables pricing, sourcing and distribution advantages, and capital efficiency. Despite the company's recent struggles, it is still creating economic profits, and at a level greater than most retailers.”

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