Coach is driving towards its vision of becoming a global lifestyle brand

Coach is driving towards its vision of becoming a global lifestyle brand

On more than one occasion, while discussing Coach’s third quarter results, CEO Victor Luis alluded to the “journey” that the company was embarked upon.

His words could be interpreted as a plea for patience after an underwhelming set of figures for the latest three-month period: net profit down 20% to US$191m, sales falling 7% to $1.1bn and gross margin narrowing 30 basis points to 71.1%.

The broad figures disguise a world which offers contrasting perspectives for the US footwear, handbag and accessories business, with a domestic slump offset by continued international growth.

Revenues in North America for the quarter ended 29 March fell 18%, with an identical decline for Coach’s directly operated stores and same store sales down 21%.

These figures were impacted, the company said, by a generally weak period for retail traffic, thanks in part to unfavourable weather conditions, and also by Easter falling in April this year, thus affecting comparisons.

But the numbers were also influenced by Coach’s own actions: while in previous periods it might have offset retail declines with gains through online sales, there was no meaningful contribution from the internet this time around.

This was thanks to a strategic decision by the company to eliminate third-party flash events this fiscal year, as well as limiting access and invitations to its own factory flash site.

The verdict from Luis? “While our overall performance in women’s handbags and accessories remains disappointing, our men’s and footwear categories continue to perform well,” he told analysts.

Luis added that “sustained themes” in the North American women’s market included leather outpacing logo in all channels, with Coach responding by “designing into” this trend.

“It’s a long-term shift that favours Coach, given our heritage in leather goods and our global sourcing network of tanneries.”

International business
But Coach’s international business continues to offer a very different perspective, with third quarter sales moving up 14% to $441m thanks in part to a 25% sales hike in China, and owned retail sites in Asia and Europe moving up significantly.

International sales now account for about one-third of Coach’s business – a figure that has been boosted, for instance, by a double-digit rise in same store sales in China in the third quarter.

“We are very pleased by the continued development of this market, which bodes well for our global travel retail business, where the mainland Chinese tourist plays an increasingly important role,” said Luis.

“Further, Coach is also recognised as both a dual gender and lifestyle brand, as men’s products and women’s lifestyle products taken together represent roughly a third of sales.”

Success in China is being repeated on a smaller scale elsewhere in the region, with South Korea, Taiwan, Malaysia and Singapore all showing double-digit aggregate growth and comps gains.

Meanwhile, Europe represents a still small market for Coach, but is growing rapidly with strong comps, Luis said: “We continue to believe that Europe represents a significant long-term opportunity for Coach, both with domestic shoppers and the international tourists, notably in key European cities where the affordable luxury segment is outperforming traditional luxury.”

“Multi-year journey”
The optimism for the future expressed by Coach and Luis centres on continued international growth, gains in the men’s and footwear segments and a retail revamp in the US centred on a new partnership with Studio Sofield.

Meanwhile, a “multi-layered, integrated marketing campaign” will focus on the vision of recently appointed creative director Stuart Vevers, Luis said.

“As our journey progresses, we have confidence in our vision of becoming a global lifestyle brand defining our view of modern luxury, making it inspirational and approachable,” he added.

But it will take time, with the process described by the Coach CEO as a “multi-year journey” for the business.

In the short term, that means a warning of further moderation of sales in fiscal 2015 as the emphasis remains on positioning the Coach brand for “healthy sustainable growth”.

It also means increased investments in stores and marketing impacting earnings per share, Luis warned, before summing up in a cautionary conclusion: “We understand that it will take time.”