Coach Inc. (COH:US), the largest U.S. luxury handbag maker, will begin discounting purses at its North American full-price stores, breaking from tradition to combat sluggish sales and mounting competition.
Coach will offer goods on sale twice a year -- in June and January -- said Andrea Resnick, a company spokeswoman. New York-based Coach had been one of the few fashion and luxury industry companies that refused to discount goods in its domestic stores.
“As part of our brand transformation, we are evolving our North American promotional model to be more in keeping with other fashion, lifestyle and luxury brands,” Resnick said. The move is consistent with what Coach already does overseas.
In the new sales, Coach will cut prices for some end-of-season and discontinued merchandise by 30 percent to 50 percent, Liz Dunn, an analyst at Macquarie Group in New York, said in a note to clients today. A presale will be available by invitation June 6 to 12, after which the event will be open to everyone, she said.
Resnick didn’t elaborate on the details of the sales.
“We have never seen an outright sale on handbags in Coach stores and we are not entirely sure what the customer reaction will be,” Dunn, who has a neutral rating on the stock, the equivalent of a hold, said in her note. “The first sale will likely be met with criticism from the investment community and confusion from customers.”
Previously, Coach offered 25 percent off coupons in its factory outlets, and its products could also be found on sale in department stores like Macy’s Inc. (M:US) Coach also has participated in third-party flash sites, which put limited quantities of products on sale for a short time. The company has been reducing flash sales participation.
It helps that Coach is trying to be more discreet about the new discounting strategy, Dunn said.
“We believe the move to appear less promotional (by not screaming 25 percent off to anyone who will listen) is a good move for the brand longer term,” she said.
After years of dominating the luxury-handbag market, Coach has struggled with competition from Michael Kors Holdings Ltd., Kate Spade & Co. and Tory Burch. Chief Executive Officer Victor Luis also has been working to refashion Coach into a lifestyle brand, selling everything from high-heeled shoes to trench coats.
The company, mostly known for its $300 handbags, now offers a full array of shoes, outerwear and other accessories. Since assuming his position in January, Luis has revamped Coach’s design team, which is refurbishing the stores and will introduce new products this fall. Coach is hosting an analyst day June 19.
The turnaround effort has yet to fuel revenue gains. Sales at North American stores open at least a year plunged 21 percent in the quarter ended March 29. That’s steeper than the 15 percent slide analysts projected and worse than the 14 percent drop during the holiday quarter. Coach said sales by that measure may slide just as much this quarter.
The shares advanced (COH:US) 1.5 percent to $39.58 at the close in New York. They have fallen 29 percent this year.
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