Coach announced recently that its profits exceeded estimates. It was a welcome piece of good news for the brand that has been struggling to maintain its position in the handbag industry.
According to Bloomberg, Coach has been experiencing a decline in sales for the past four quarters. Its shares have fallen 39 percent since the beginning of the year.
Analysts believe Coach has been struggling recently because it has opened a series of outlet stores throughout the United States. The outlet stores carry less expensive handbags, which have attracted less wealthy customers but reduced the brand’s exclusive nature and pricing power. With Coach handbags more readily accessible to lower-income consumers, wealthier customers have become less interested in the label’s more expensive products. Instead, those consumers are purchasing handbags from more expensive luxury brands, such as Tory Burch and Michael Kors. Those brands have experienced double-digit growth in sales recently.
Despite its declining sales, Coach still retains 23 percent of the $12 billion handbag market in the United States. The company hopes to maintain its position and draw back wealthier customers by repositioning itself as a “modern luxury” company, rather than an “accessible luxury” brand.
Coach is undergoing a dramatic transformation to achieve this goal. The company recently hired a new creative director, Stuart Vevers, who previously worked for Mulberry and Loewe. Coach has also hired a new CEO, Victor Luis. The company is cutting 150 jobs, offering fewer discounts, and closing 70 stores, which represent 20 percent of its stores in North America. Coach is opening or remodeling stores in the 12 largest markets and selling pricier handbags.
Coach is trying to transition to a position as a lifestyle brand by offering shoes and outerwear in addition to handbags. The company has also updated its packaging, store appearance, and logo, which now reads “Coach New York,” rather than “Coach 1941.”
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