Coach made a classic mistake.
Looking to exploit its popularity, the company fell into a trap that’s snagged many high-flying retail brands: It expanded fast, opened outlet stores, and started to offer discounts to keep customers coming back.
And it lost the exclusivity that made it possible for Coach to charge $600 for a handbag.
“Coach is a classic example of a company that became a victim of its own success,” writes Håkon Helgesen, a retail analyst at equity research firm Conlumino. “Its products became ubiquitous – something that sits uncomfortably with the concept of luxury, where a degree of exclusivity needs to be maintained.”
Today, Coach controls 17% of the US handbag market, according to Morgan Stanley. Two years ago, it controlled 24%.
But the company is trying to undo the damage. Coach has been renovating stores, cutting back on the promotions, and offering updated designs that customers will want to pay full price for.
Those efforts seem to be gaining traction.
For the Coach brand, sales fell 9.3% in the latest quarter. That’s better than the double-digit declines the company was reporting last year.
And it was good enough for investors. Shares of Coach rose as much as 9% on the news.
To be sure, that’s a gain off a low base. Coach’s shares are still down more than 10% in the past year and more than 40% in the past three.
And the company still has some work ahead. The largest portion of Coach’s sales are still coming from discounted factory outlets, according to a recent Morgan Stanley survey, while consumers are more likely to pay full price for competitors like Michael Kors and Tory Burch.
- Morgan Stanley
But analysts at Morgan Stanley believe that management is still making the right decisions by recruiting talent from other luxury companies and offering better products.
“We see green shoots emerging,” retail analysts Kimberly Greenberger and Lauren Cassel wrote in a recent report.