How Coach Defies the Odds

Even in a time of near recession, the luxury accessory maker is going strong through a mix of high-end and outlet stores, and steady innovation

by Judith Crown

One of the hottest bags in the Coach (COH) line this spring is the Francine, a shiny, patent leather number in bright colors like teal and purple that sells for $798. It's selling well not just in flagship stores on Michigan Avenue in Chicago and Madison Avenue in New York, but in Buford, Ga. and Edina, Minn.

Coach's uncanny ability to figure out what women want—get them to buy more purses for more occasions and spend more on the ones they buy—is propelling the financial results at the $2.6 billion New York accessory maker and retailer. With average sales growth of 24% over the past three years and a 61% return on invested capital, the company is No. 1 on this year's BusinessWeek 50 ranking of top performers.

Snazzy satchels

Coach is no newcomer to the list—it was ranked No. 2 last year. Chief Executive OfficerLew Frankfort and designer Reed Krakoff have been driving the line upscale for years, from functional and sturdy to chic status symbol with the distinctive "C" logo and leather trim. Not only are the purses coveted, they are highly profitable—the company's gross margin was 77.4% for its last fiscal year, exceeding peers in the luxury goods arena such as Tiffany (TIF) (56%) and Paris-based LVMH Group (LVMH.PA) (65%.)

What's the secret to Coach's consistent success? "It's a blend of logic and magic," Frankfort says. "Logic in the rigorous analysis we use to help us make decisions and magic in the art of great design."

A native of the Bronx, the 62-year-old Frankfort was a New York City commissioner before joining the growing leather goods company in 1979 as head of business development. When Coach's founder sold out to Sara Lee Corp. (SLE) in 1985, Frankfort became president. In 2000 he led the company through its spinoff from the Chicago food and apparel conglomerate. Today, Coach's market capitalization exceeds that of its former parent.

Frankfort remains immersed in the details of the business, from the price of wallets to the location of new stores. His favorite bag: A new entry for Mother's Day called the Ergo Pleated Framed Satchel, which will retail for $458.