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

Coach's Poppy Line Is Luxury for Recessionary Times

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By comparison, brands such as Polo Ralph Lauren and Tiffany have margins of less than 60%.

Frankfort calls what happened at the meeting a collective epiphany. After the executives returned to Manhattan, Krakoff began developing Poppy so that the average price of a bag would be less than $300. The figure meant everything and nothing to him. "The smartest way to be creative is to understand your limitations from the start," Krakoff says. "If you don't have that information, your idea gets pushed this way and that way: The leather is too expensive, the shape is too big, this won't work in Japan. Then no one is happy. I want to know everything in the beginning."

Designing Poppy required a close and improvised collaboration between Krakoff and Stritzke, Coach's chief operating officer. Krakoff wanted the leather and the fabric to be thinner, lighter, softer, drapier. He wanted the name Coach to look like it had been written in graffiti on some bags, but the company didn't have much experience with printing. "Poppy shifted the burden to the supply chain to bring innovation to the designers," says Stritzke, 48, who has years of experience in the global manufacturing of apparel. "We're much more attuned to what each other needs now."

Stritzke discovered that Coach "hadn't explored as many of the alternatives as you might have thought." As he explains: "We [moved] production from America to Asia, but we hadn't done much more than that." Stritzke traveled to Asia to strike deals with new tanneries and factories, and he renegotiated contracts with European suppliers, which still provide about half of Coach's leather. "It's ironic," Stritzke says. "The economic environment makes this necessary and easier. It would have been harder if our global suppliers were busy making inexpensive dumb stuff where they don't have to work as hard." Coach has also benefited from a 15% drop in the price of leather, as many of the biggest buyers—auto companies, shoe and furniture makers—have faltered.

Over the next several months members of Coach's design and merchandising groups met three times to review Poppy's progress. They considered 25 different materials and 15 Coach tags to hang on the purses. They worked through three prototypes for each of the six bags. By Oct. 15 they were ready to present the line to Frankfort, who deemed it "awesome." The next month, Coach invited a couple dozen young women, four to six at a time, to its Manhattan showroom to assess the collection. Poppy seemed to resonate with them. No one at Coach felt the need to make any changes.

That bit of good cheer soon gave way to a dismal reality: the worst holiday season anyone at Coach had ever experienced. The company's profits for the last three months of 2008 declined 14%. "The first question everyone asked when they came into our full-price stores was, 'What's on sale?' " says Frankfort. "We never go on sale." (Coach does discount at its outlets, which Frankfort says draw different customers.) Any lingering resistance to the idea that Coach had to reposition itself ended then. "Sometimes you need to get roughed up a bit to make a courageous move," says Tucci.

As spring began, Frankfort looked for other ways to cut costs. He laid off 10% of the corporate staff and said Coach would close four stores. The company had already planned to move the East Hampton store to a smaller space on a more desirable lane.

The main pieces in the Poppy collection were tested in nine Coach stores and 23 department stores in April and May. And for the first time, Coach let people make online purchases through Facebook. Two $198 bags, the Groovy and the Glam, did better than Coach expected. But one didn't do quite as well: That was the Spotlight, which sells for $298.

Berfield is an associate editor at BusinessWeek .

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