Coach's pivot from discounts brings optimistic results

Dive Brief:

After damaging its brand with heavy discounts and perhaps too much attention to its outlet stores, according to analysts, Coach Tuesday reported Q2 net sales increased 7% to $1.27 billion. Same-store sales fell just 4%, the smallest drop in more than two years. Fortune notes that while the company itself doesn’t break out outlet sales, they account for some 70% of the company’s sales, by some estimates.
Coach CEO Victor Luis said the rebound was led by its e-commerce growth and improvements to stores, which the company has revamped in the U.S. with a new “modern luxury concept." Its Stuart Weitzman footwear brand exceeded the company’s expectations, Luis said, with strong sales in the U.S. and abroad, and early success in Asia.
Luis gave particular props to executive creative director of American accessories Stuart Vevers, who came aboard in 2013 to what was widely viewed as a failing brand that had lost its upscale reputation. “During the second quarter, as in Q1, essentially all of our retail stores' offering, both men's and women's, were Stuart Vevers' designs,” Luis said during the company’s earnings call.

Dive Insight:

Damage to a brand can be indelible, and retail futurist Doug Stephens, author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism and the Retail Prophet blog, singled out Coach late last year as suffering from self-inflicted wounds that damaged its sense of exclusivity.

The company appears to be rectifying this in part by reducing the frequency and depth of its discounts, turning instead to less frequent promotional events that the company has found actually brings in new customers, according to Andre Cohen, president of Coach North America.

“Part of the thing about luxury is scarcity and the unattainable nature of something that makes it seductive. So as soon as you open the funnel — doesn’t matter if you can afford it or not — it’s about seeing people at the food court with a bag” that was once a rarity, Stephens told Retail Dive in November.

“The problem when we start taking about brands like Michael Kors, Hugo boss, all these retailers moving to the outlet malls, their luxury appeal that got them to the party is diluted," Stephens continued. "That Coach customer that paid $2,000 for a handbag, as soon as they see that $400 one, isn’t pleased. That’s happening to Coach and that’s also happening to Michael Kors.”

With this upbeat report, Coach appears to be successfully pivoting away from that, opening up the possibility that it could climb out of the hole it dug itself into.