Saturday, January 5, 2008

Coach Heads To The Bargain Bin

Coach, the once lusted-after luxury marque, has officially hit the bargain bin. Long available at discounters like Costco (no, we're not kidding), we've seen a bunch of Coach loot show up at Nordstrom Rack locations. Usually, luxo-brands showing up on the cheap would be cause for celebration. For example, all Marc by Marc Jacobs shoes are 90% off at his boutiques. That's something to celebrate. But due to Coach's weakened cachet (and generally poor design [Is splattering your logo all over everything you make really a design direction?]), it's really a sign of caution to investors unlucky enough to be holding Coach shares.

Coach stock has already fallen more than 47% from its peak in August, it's slide only accelerating in October and December. Looks like a bloodbath.

Perhaps if Coach focused more on design and not over-emblazoning their logo on everything (not to mention maintaining exclusivity by limiting supply), they would've sold more goods at higher prices, maintaining their streak they've had going for the last few years and avoiding their newfound reliance on discounters. It could get worse, much, much worse. Personally, we hope the stock prices' precipitous fall will awaken management to the fact that heads need to roll at Coach HQ.


Xavier said...
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Xavier said...

Coach's availability at Nordstrom Rack is absolutely nothing new, nor is it a good indication of their value in any sense. Furthermore, Coach's weakened cachet has nothing to do with their supposedly poor design. Their entry-level and mid-level handbags have actually not changed dramatically in terms of design since Coach's sales peak under designer Reed Krakoff in the past few years. In fact, Reed Krakoff has been generally lauded for his work, especially by the CFDA. Instead, Coach's weak performance has more to do with the aspirational luxury market as a whole. Coach's largest target group, those with household incomes of about $75,000, is also the most sensitive to changes in their discretionary spending. Nordstrom, which aims at the top 10% or so of households, or those somewhere above $100,000, is also finding their customer pulling back. Nordstrom has been able to find some relief in bulking up their designer collections, which are purchased by those in the upper end of the income range, who have traditionally been rather impervious to economic shifts. Nordstrom has been smart to invest several millions into upgrading the stores in each market that house designer collections, such as the Bellevue Square and Downtown Seattle locations. Coach, on the other hand, has struggled to gain a large following of their Legacy Collection and other upper-end products, not because of their actual design, but because the high-end consumer to which these products are targeted has not been conditioned to view Coach products as having the same value as other products in the entry-level designer handbag market, with some prices now similar to those from Burberry, Salvatore Ferragamo, and others. Coach's perception of their upper-level customer has a much lower price resistance for Coach products than Coach would have hoped. Without capturing the upper-level consumer, and with the middle-level and entry-level Coach consumer showing hesitance, Coach's sales forecasts have taken a tumble.