Retailing

With Bag Sales Down, Coach Turns to the Runway


Not long ago analysts were worried that luxury fashion brands would be stunted by knockoffs in China while retaining their cachet in the U.S. But for Coach (COH), the near-luxury American leather goods company, an opposite scenario is panning out: Sales at North American stores open for more than a year dropped an ugly 14 percent in the recent quarter. This is particularly problematic, because roughly two of every three dollars Coach collects currently come from North American shoppers.

In Coach’s home country, the company reported “substantially lower” store traffic and seemed to regret a decision to limit access to online flash sales.

Some of its bag business is being swiped by Michael Kors (KORS), which remains white-hot, and such similarly priced brands as J.Crew and Club Monaco (RL), both of which have expanded their leather goods offerings. Consumers are also clamoring for Kate Spade (FNP), which posted more than a 20 percent rise in same-store sales for the past 13 quarters. All told, Coach profit fell 16 percent, to $297 million, in the recent quarter, while its sales slumped 6 percent, to $1.42 billion.

In an attempt to recoup lost profits, Coach hired a new, fashion-minded creative director—Stuart Vevers, most recently of the LVMH (MC:FP)-owned Spanish company Loewe—and announced last year it would be expanding further into apparel. Today, it added that the fruits of all that labor will first be seen in the exclusive environs of New York Fashion Week, during which the company will host a five-day presentation (on models) to woo editors and buyers. In recent seasons, J.Crew and Ann Taylor (ANN) have made similar moves.

On the nonclothing front, Coach is putting its eggs in one bag: the “Borough Bag,” which has been selling well and photographed on the arms of celebrities. Executives are also optimistic about its growing menswear line and two “dual gender” stores focused on such lifestyle products as dog collars and umbrellas. If women aren’t buying bags, perhaps they’ll go for those.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • COH
    (Coach Inc)
    • $37.18 USD
    • -0.06
    • -0.16%
  • KORS
    (Michael Kors Holdings Ltd)
    • $82.94 USD
    • 0.94
    • 1.13%
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