CEO Victor Luis talks Coach's turnaround strategy (Fortune interview)

katev

"The Bag Whisperer!"
O.G.
Dec 18, 2009
15,304
9,620
More about the store closings and Coach's rebuilding plans:
http://fortune.com/2014/06/20/coach-ceo-victor-luis/

CEO Victor Luis talks Coach's turnaround strategy



Phil Wahba
June 20, 2014, 12:05 PM EDT


Fortune’s exclusive interview with the Coach CEO discusses the company’s 5-year plan.

Coach ( COH -2.69% )laid out on Thursday the strategy it hopes will help it win back the market share it has lost in North America to the likes of Michael Kors ( KORS -0.85% )and kate spade ( KATE 2.59% ), and accelerate its growth overseas.

The New York handbag and leather-goods company told Wall Street analysts that it planned to close 20% of its full-service stores in North America, where comparable sales fell 21% last quarter, in the coming months. The brand will consolidate some of its factory stores in the region as well. It will try to make up for that with better spots in department stores and high-touch flagship stores in the 12 major North American markets where it gets half of its sales.

In September, it will start selling the first collection designed by creative director Stuart Vevers, who has focused on the 73-year-old company’s heritage and New York roots. The new collection is a nod to Coach classics—and an effort to start to win back shoppers who thought the brand had grown too showy in recent years.

Even in China, the motor of its sales growth of late, Coach is tweaking its approach, closing stores in locations that have become less attractive and opening new stores in better spots.

Investors proved nervous and sent shares down 9% after the company said returning to growth could take a while.

Coach CEO Victor Luis, who took the reins in January after helping build the luxury company’s international business in recent years, sat down with Fortune at Coach’s Manhattan headquarters for an exclusive interview to discuss his strategy.

Fortune: In closing stores in many smaller markets, do you not risk ceding the opportunity in such locations to rivals like Michael Kors, which is expanding?

Most of the moves are not about giving up on total markets. They are in markets where we have more than one location. In all of the malls where we are closing stores, we have a wholesale location, either at a Macy’s ( M 0.12% ), a Bloomingdale’s, or another partner.

Why the focus on the 12 major North America markets, rather than a broader footprint?

They represent over half of our sales, and certainly they represent the most important tourist destinations. They are the PR (public relations) and marketing megaphones to the world because a lot of the consumers who shop there tend to be the trendsetters as well.

How does your e-commerce, which you are overhauling currently, play into this shift away from malls?

Part of this is not Coach-specific. Part of what we are seeing in general is reduced traffic to the American shopping mall, driven by an increase in e-commerce. Certainly, with many of the consumers that would normally be shopping in these smaller locations, one of the opportunities is going to be how we can engage with them via our web site.”

You say Coach will enhance its locations inside North American department stores. How and why will you do that?

We are making investments targeted at making up for the store closings. There is a place for the American department store, and in those that we choose to be in, we want to look good.

In many of the locations, we’re going to be bringing Coach-funded sales specialists who will be able to ensure there is a level of customer service. Coach will have its own staff at 50 shops inside a department store next year, and triple that in another 2 years. [Until now, such sales staff were employed by the department store.]

Coach announced today that it is looking for a spot to have a big New York City flagship—why is this important?

[It] would be the epicenter of Coach globally, a reflection of our total brand here, in the city where we were born, in the city that is our number-one inspiration. That is a very important project for us, and that search continues.

How does your New York heritage play into your expansion plans in Europe, where you remain a small player in many key markets and where many upscale and luxury brands are much older and better established?

We have to go in there with a combination of ‘yes, we have a history and heritage of craftsmanship as the leading U.S. house of leather, but we are also a fashion and lifestyle resource that is today indicative of the New York fashion style.’

Vevers has dived into Coach’s archives, an approach that has informed his first collection for Coach. How does the focus on Coach’s history help you?

There is a generation of consumers who don’t know Coach of earlier years and others who do, and I think what we need to do, and are trying to do, over the next 12-18 months, is ensure that consumers are aware of our core, what is our DNA, who are our roots, who we are.

You are closing some locations in China, and replacing them with others. Why are you willing to run the risk of slowing your growth in a market that is increasingly important to you?

Things in China move so rapidly so great malls, great department stores that were the right place to be 5 years ago, may no longer be that place. We’re taking an aggressive stance in ensuring we are in the right locations by making the tough decision to close some stores and move them to better locations.
 

lizmil

O.G.
Dec 30, 2007
5,533
327
This sounds a lot more well thought out than a lot of what we've been reading about the company recently. I do have to say though, that it's great that if you don't live in a large market we (Coach) don't give a crap about you and you can just shop online (where presumably we will lock you out of the "special" website).

That was in my sarcasm font.

I just bought a gorgeous bag off eBay that was in the Asia market. I'd never see the likes of it anywhere near me. I"ll post the link in a minute.

Here it is:

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=261511508279&ssPageName=ADME:B:EOIBSA:US:3160
 

CharliLuvsCoach

AccessoryWhore
Sep 2, 2013
637
1
Interesting comment about replacing department store sales staff with Coach staff. That would tighten up on extra discounts that Coach has vetoed but store staff give anyway (such as discounts at say, Macy's, that were given on the Borough when Coach excluded them from PCE and department stores were supposed to as well) while looking like a 'better level of service.' Very interesting--thank you for the article!
 

iNeedCoffee

Coachaholic
Jul 26, 2012
1,731
152
South Carolina
This sounds a lot more well thought out than a lot of what we've been reading about the company recently. I do have to say though, that it's great that if you don't live in a large market we (Coach) don't give a crap about you and you can just shop online (where presumably we will lock you out of the "special" website).

That was in my sarcasm font.

I just bought a gorgeous bag off eBay that was in the Asia market. I'd never see the likes of it anywhere near me. I"ll post the link in a minute.

Here it is:

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=261511508279&ssPageName=ADME:B:EOIBSA:US:3160
ITA !
Congrats on your new beauty!! What a find!
 

TejasMama

O.G.
Mar 29, 2007
7,888
158
Thank you for posting this! I think what he says sounds fine, but I also know from past business experience that "anything works on paper." There are a lot of moving parts, customer expectations, confusion and other factors that play heavily into whether we buy Coach and how we feel about the brand. I personally think they should consolidate and close stores and be MORE CONSISTENT with respect to discounting and sales. No one wants to feel like a sucker when you find a bag you love at the outlet for half off shortly after purchasing it. If this strategy is going to work, they are going to need A LOT OF CASH, and if they are are closing outlets and stopping sales, I hope their flow forecasters really know what they're doing. If they are going to have a shot at making this strategy work, they are going to bleed big for awhile and will need some serious intestinal fortitude to stick it out to see if the brand can truly be converted to a more upscale brand.

I'm rooting for Coach. I hope they are able to pull it off. I may not be a customer for quite some time depending on the styles and designs but they are an iconic American brand and I would hate to see them fail.
 

lizmil

O.G.
Dec 30, 2007
5,533
327
Thank you for posting this! I think what he says sounds fine, but I also know from past business experience that "anything works on paper." There are a lot of moving parts, customer expectations, confusion and other factors that play heavily into whether we buy Coach and how we feel about the brand. I personally think they should consolidate and close stores and be MORE CONSISTENT with respect to discounting and sales. No one wants to feel like a sucker when you find a bag you love at the outlet for half off shortly after purchasing it. If this strategy is going to work, they are going to need A LOT OF CASH, and if they are are closing outlets and stopping sales, I hope their flow forecasters really know what they're doing. If they are going to have a shot at making this strategy work, they are going to bleed big for awhile and will need some serious intestinal fortitude to stick it out to see if the brand can truly be converted to a more upscale brand.

I'm rooting for Coach. I hope they are able to pull it off. I may not be a customer for quite some time depending on the styles and designs but they are an iconic American brand and I would hate to see them fail.
Good points... I keep wondering if Coach is a "buy" stock right now?
 

Toto too

O.G.
Nov 21, 2006
748
45
It really is silly to go to a mall, have a Coach store, then have Coach in three of the anchor stores, particularly when they all have their own rules.

It would seem to me that it would make more sense to keep the individual stores open, but take Coach out of the department stores. I'm guessing it's less expensive to have a space in a department store than an individual store. The only time I see the department store Coach sections busy is when the whole store is having a sale.
 

pslpursemom

Member
Feb 25, 2012
748
0
thanks for posting, I feel a lot better after reading this. I feel it could work if they don't roll out new products every month and discount them every 3-6 mos after rollout, as someone else said, they really need to stick to the plan and not abandon it once they start to see too much red ink and the stock gets beat up as well. I'm skeptical only because of the competition from MK, KS and Tory Burch that they never used to have, the other brands are gaining all of the market that Coach has lost, it's going to be difficult to get it back. Coach can do it, they've been around since 1941.
 

katev

"The Bag Whisperer!"
O.G.
Dec 18, 2009
15,304
9,620
This sounds a lot more well thought out than a lot of what we've been reading about the company recently. I do have to say though, that it's great that if you don't live in a large market we (Coach) don't give a crap about you and you can just shop online (where presumably we will lock you out of the "special" website).

That was in my sarcasm font.

I just bought a gorgeous bag off eBay that was in the Asia market. I'd never see the likes of it anywhere near me. I"ll post the link in a minute.

Here it is:

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=261511508279&ssPageName=ADME:B:EOIBSA:US:3160

Gorgeous bag, please reveal when you receive it!
 

Izzy48

IZZY
Jul 25, 2013
4,884
1,376
Southeast
Good points... I keep wondering if Coach is a "buy" stock right now?
Yes, I am wondering the same. I was prepared to buy about 6 months ago and was advised not to do so. I continue to watch and the advice was good. However, it might be getting close to time to buy if I am going to do so. The business plan is solid unless they price out their customers of many years. If they bring back the quality of Coach I once knew it would be wonderful to buy from them. I want Coach to succeed.
 
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