The coach is made with affordable luxury

Fashion has known many trainers.

The New York-based leather goods brand was the shoulder bag for the masses, the wristlet for every American tween, the fashion optimists, the boom in demand and the fall sentiment. But for his next act, Coach will play fashion’s Dr. Frankenstein and slay the monster he created: affordable luxury, fashion’s middle ground between ultra-cheap and luxury.

“This idea of ​​accessible luxury or trying to redefine access to luxury has hurt us,” said CEO Todd Khan. “He put us in a box that we no longer live in.”

At Coach’s investor day Friday, the brand is coining a new term, “expressive luxury,” as part of a broader repositioning aimed at luring Gen-Z and away from market connotations of “accessible” and more toward “luxury.” ». “

The repositioning builds on Coach’s recovery that began a decade ago after it fell into a slump with affordable luxury stalwarts like Michael Kors. To change its fortunes then, the company commissioned ex-Loewe and ex-Louis Vuitton import Stuart Vevers to speak for Coach as a lifestyle brand with a high-fashion temperament. He introduced ready-made clothes and concepts like Rexy the dinosaur, but nothing seemed to stick. Sales stagnated and executives went through a revolving door.

Coach started to see some momentum internationally in 2019, but sales in North America continued to deteriorate. The pandemic wiped out all progress and then some. In mid-2020, when Todd Kahn — a 14-year veteran of the brand — was named interim CEO of the brand, shares of Tapestry, Coach’s parent company, were trading at their lowest point since the financial crisis of 2009. Coach himself he needed a lifeline.

“I felt a bit like Winston Churchill on the eve of World War II,” Kahn said.

Looks like Coach’s efforts are starting to pay off. In the most recent fiscal year, the brand’s total sales rebounded to levels above pre-pandemic levels, up 16% year-over-year to $4.9 billion. It managed to increase the average price of its handbags by 30 percent compared to 2019. A report by BoF Insights found that Coach was the first brand that most US shoppers thought of when thinking about buying a bag and ranked in the top 10 between high-quality value individuals in the US and China. Coach has recruited nearly 8 million new customers in North America over the past two years.

Coach was one of the first of the U.S. mid-luxury brands to recognize that it had been undervalued, with Michael Kors and Ralph Lauren now aiming for the same kind of brand recognition, said BMO Capital Markets managing director and senior analyst Simeon Siegal. All are scrambling to cement their high-end status, which should help them weather a recession that is likely to hit lower-income customers harder than the wealthy.

“The most difficult question in fashion is finding the right balance between exclusivity and distribution,” Siegel said. “It’s figuring out how to sell a lot without losing the ability to set the price.”

Power restored

Beginning in the early 2010s, Coach began to regain pricing power. It cut costs, reduced inventory and pulled out of department stores, building a fleet of stores where it could push cheaper bags to a mass consumer without relying on extreme discounts. Sales increased gradually, but undeniably.

During the pandemic, Coach debuted a plan to boost data and digital. It created an e-commerce arm, boosting online sales from 8 percent of total revenue in 2020 to about 30 percent now, Kahn said. She began to look at her client clearly, rather than ambitiously. Kahn acknowledged as much in a 2020 earnings call: “At times we’ve put too much emphasis on the customer we wanted and not who our customer actually is.”

The target customer shops across all channels, buying a $200 bag one day and then an $800 bag the next, Kahn said. Instead of offering full-price items on Fifth Avenue and bargains tucked away in the suburbs, they’re mixing it up online — up to a point. Customers could purchase basic products on coachoutlet.com for less than $500 and embellished, limited-edition versions on Coach.com for more.

The coach also started to get the circulation rate and product right. Noticing the popularity of its Tabby bag in 2019, it released a blistering update in 2021, rather than phasing it into stores and focusing on a new shape. Coach has since updated the Tabby with a soft version and different colorways in a range of prices—from $195 to $4,500.

The same goes for other popular bags. This month the brand released a graffiti-covered Rogue as part of a collaboration with artists Mint + Serf. Last month, he turned the silhouette into a cartoon, with leathery eyes and ragged eyebrows to make “Coachies.”

“It’s actually a much more powerful formula for success than constantly bringing new ones and killing the great bags prematurely,” Kahn said.

Call it a comeback?

Coach has had some help from its rivals in finding a larger audience for its full-price merchandise. According to Jefferies, luxury brands increased prices by an average of 10.7% in 2021 and have already increased prices by 10.3% this year. Some Chanel bags have doubled in price since 2019. Coach bags, still mostly under $1,000, are aimed at the price-conscious entry-level luxury consumer.

“The white space between us and them has grown wider than at any other time in our history,” Khan said.

A surge in resale could make things more difficult, said Michael Binetti, managing director and senior equity analyst at Credit Suisse. What prevents a consumer from buying a used Gucci bag for $1000, instead of a new Coach bag for the same price?

Where Coach turned to a more streamlined approach to merchandising, it took the opposite strategy when it came to ambassadors—an effort to make people think of Coach as more than a price tag and create a virtuous halo around the product. Since getting Selena Gomez in 2016, Coach now counts over 40 global influencers, musicians, actors and other celebrities on its roster.

They’re often photographed by fashion forward Juergen Teller or featured in silly campaigns like Coach’s Season 2, where Megan Thee Stallion, Jennifer Lopez and K-Pop’s Dawn channeled their nostalgia in TV commercials and pop culture moments alongside other specialized names like Tavi. Gevinson and Hari Nef.

A wide range of ambassadors is key to expanding Coach’s audience, Khan said. The brand will tap new spokespeople, but its marketing will focus more on storytelling and promoting Coach as the key to expressing personal style.

“Like 2000 when Coach coined the term accessible luxury and entered a golden age, this is the next golden age for Coach with expressive luxury,” said Kahn.

Expanding the footprint

To continue to grow, Coach will have to find a way to sell more products to more customers while maintaining control over brand perception, Siegel said.

The brand has gained traction from a digital perspective, with a growing e-commerce platform and a fun social media presence full of influencers — even with success on TikTok, with the help of the 7,500 influencers with more than 10,000 followers who have posted about Coach at least once this year, according to data firm Tribe Dynamics. Key creators like Alyssa McKay propelled the label’s offering: #CoachOutlet generated nearly $4.9 million in earned media value, Tribe Dynamics said.

Elsewhere, Coach continues to bolster its celebrity profile, recently unveiling custom looks for Lil Nas X and campaigns featuring the Haim sisters, Megan Thee Stallion and Japanese actor Dean Fujioka. Whether it has been able to convince buyers that it is worth a normal price increase remains up in the air.

Additionally, the world is in the midst of a Covid hangover, Siegel said. Doing business in China, which is a major driver for Coach, is becoming even more difficult. During the pandemic, demand for bags has increased, but it has not yet leveled off, Siegel said. This could make it difficult for Coach to properly stock up and avoid falling into the dead count of the sale.

“I don’t know that we know what the new normal is yet … the question is going to be who can sustain their brand’s rise in price points,” Siegel said.

Coach thinks by rewriting the affordability narrative that plagued it and shifting it to fit what it sees as Gen-Z’s evolving perception of luxury, it can create staying power. A promising sign: Coach surpassed both Michael Kors and Louis Vuitton as teenagers’ favorite handbag brand in Piper Sandler’s Spring 2022 survey.

“We excavated our purpose – and I use the word excavated very deliberately because it was always there,” Kahn said.

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