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In Depth June 18, 2009, 5:00PM EST

Coach's Poppy Line Is Luxury for Recessionary Times

Adapting to a more frugal consumer, Coach has created the less pricey Poppy line, revamping its product mix to lower its average bag price to $290

By Susan Berfield

The Hamptons, the celebrated summer retreat, has never been for those with modest ambitions. The homes are lush, the stores well-appointed. For many, it represented America in the extreme: shorn of humility and caution, a place of careless abundance. Then the stock market gave way, Bear Stearns collapsed, and the recession arrived.

In July 2008, amid the spreading gloom, the senior executives of Coach (COH) gathered in the empty second floor of their 4,000-square-foot store at 69 Main St. in East Hampton for a private annual meeting. At the end of the first day they made an important decision. The brand had emerged from its modest origins in the 1940s to become an emblem of the working woman and then, remarkably, a favorite among the fashion-conscious. It had created the very conceit of affordable luxury. Now that sense of expansiveness, opportunity, even desire, was diminished. Coach had to adapt.

So began a nearly yearlong quest to design a line of purses and accessories that could be priced to fit the times without cheapening, or otherwise damaging, Coach's image. Doing so would require executives to find new sources of leather, fabric, and hardware, renegotiate deals with suppliers, and collaborate more than they ever had. "I've never worked harder," says Lew Frankfort, who has been with Coach since 1979 and has served as its chief executive since 1995. The resulting collection, which will be introduced in late June, is called Poppy. It's more youthful; Frankfort describes it as eclectic and spontaneous. The average price will be $260, about 20% less than the usual Coach purse.

Nearly every fashion label has had to find a way to seem recession-chic. J.Crew (JCG) now sells a basic ballet flat for $98 instead of $118. The average price of a Vera Wang wedding gown was $5,500 last year; next spring it will be $3,800. One of the worries at Coach is that Poppy might be regarded as a temporary—or, worse, ill-considered—response to consumers' straitened circumstances. Frankfort and his team believe that the habits and expectations developed during the recession will last far beyond it. The days of the $330 purse could be over. Poppy is supposed to help move the entire company back to what Frankfort calls a more comfortable place, which at Coach means an average price of $290 for a handbag.

For Coach this shift is a social experiment, a managerial challenge, and a financial necessity. Company revenues during its last fiscal year, which ended in June 2008, were $3.18 billion, up 22% from the year before. But now, for the first time since the handbag maker went public in 2000, sales growth is slowing, profits are falling, and margins have slipped. Coach is disciplined: It frequently surveys customers about their outlook and tastes; it carefully tests new designs; it measures almost everything; and it has a lot of cash. The company might handle this comedown just fine. But when women, fashion, and money are involved, the results aren't always predictable.

PARSING THE NUMBERS

Frankfort, 63, energetic and exacting, sits at a glass desk in an airy office on the 12th floor of the old brick building in Manhattan that used to be Coach's factory. The white orchids are placed just so; coffee and juice are here, newspapers and magazines there. On the wall behind him he has neatly tacked up pages of numbers. Daily and weekly sales reports are broken down by category and store, of which there are 324 full-price and 109 factory outlets in North America (Coach also sells in some department stores). Then the data are more finely parsed to determine the number of people who came into each store, the percentage who bought something, what they purchased, and how much they spent. Frankfort also keeps track of the global instructions for the next floor plan, which is changed monthly in every store as Coach introduces items and removes others (eventually those make their way to the outlets).

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