Why Goldman Sachs Believes Coach's (COH) Turnaround Is Alienating Consumers

[iNeedCoffee]

Perfect way to phrase it.



That surprised me too, but one possibility is that it's a combination of two things ----
1. the author's lack of interest in bags (ie. it is a man, and he probably doesn't take note of handbags being carried around him), and
2. the fact that since Coach is *offering* far fewer signature bags lately (at both boutique and factory store), maybe looking at just the raw numbers he saw a downward trend in signature purchases.
What I mean is, if Coach is offering less signature, then of course the raw data would show less signature being purchased. And maybe he's not interested in handbags enough to know, as we do, that Coach is simply offering fewer, whereas there's a heck of a lot of older signature bags walking around on ladies' arms. Hope that makes sense.

And yes, I agree with many comments above about removing PCE's and dropping so many from FOS as being a bad move. When I found these articles, I was trying to explain to my husband last night, that while the stock has been doing down, down, down for over a year now, some of their most remarkable moves have been: drop people from FOS (alienate many of those customers, "check"); do away with PCE (dissuade some/many of those customers, "check"); the great feather fob debacle (not as many people alienated with that one, since it was primarily just the TPF forum that knew how to order in the first place, but still, what a glorious display Coach put on while doing it ... I mean come on, turning UPS trucks around???? ; "check").

And while I admit I didn't feel up as much leather as I would have liked to, or probably should have, on my quick trip to the boutique last weekend, many reports *here* are that in the new Vevers stuff, the Rhyder leathers are thin, sticky, and plasticky (just quoting words I've seen tossed around here), and only the Dakotah leather is genuinely impressive for the price point. So those people that they *haven't* managed to alienate to some degree yet, ie. the ones they're trying to lure in, perhaps, from Gucci, Prada, Fendi, Chloe, Burberry, etc etc ... does Coach think those people simply won't notice the leather? Or, for that matter, that long time Coach leather fans won't catch on?

Disclaimer: I'm obviously not talking "everyone", I'm talking trends. But this is just turning into one thing after another. And yes, it's definitely throwing things against a wall to see what sticks. Again, I *am* a Coach lover. If you don't believe me, look at how many Willis's, Zoe's, Molly's, even Campbell's that I have. Coach was my first love back in graduate school, when a classmate and new friend of mine introduced me to her mother's love of classic Coach. I was star struck. .... And I do hope Coach can turn their stock around. But this is just getting painful (even macabre-ly comical) to watch. (Sorry for the rant. I don't usually rant. Climbing back down from my little box now.)
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I agree with you on all points, Momtok.

 

[pixiejenna]

I actually went to the mall yesterday and swung by coach to check out the new floor set IRL. Friday afternoon the mall was busy but only 3 customers in coach(me being one of them) and 3 SA's two where helping check out a customer while the 3rd was doing something on the computer. I was surprised to see they remodeled the store with a huge chunk of it now dedicated to shoes the back portion of the store (the man zone) has shrunken quite a bit and they added some clothes(not a lot). It was a far cry from how the store was say 5-10 years ago business wise. The best part to me was I was able to check out the new bags with out the SA's badgering me 24/7. One of the main reasons why I hate shopping there and usually go to department stores to check out their bags is the constant barge of SA's.

 

[ltbag]

Here is the problem with Coach's new approach as I see it:

Supposedly they want to be a high end premier designer line now in both clothes, shoes, accessories and bags. But...

1. They are still letting mid-market department stores such as Macys and Lord and Taylor carry the supposedly premier bags and accessories. This means that a: the bags will not draw new premier clientele at those stores, since premier clientele are shopping at Barneys and Bergdorfs not Macys and Lord and Taylor, and b: those bags will be discounted along with the rest of the merchandise that stores like Macys and Lord and Taylor sell.

2. They skimped on materials and the bags simply do not look and feel high end. (the Dakota and Tatum lines are somewhat high end feeling so I am excluding them from this comment) This means they will not sell them in large quantities at the full price and they will end up in the outlets, starting the discounting cycle all over again. If for some reason the Vevers bags do not end up at outlets, then they will be heavily discounted in January during the semi-annual sale.

3. Their marketing approach is all over the place. They have 16 year old girls modeling but they are selling the bags at Lord and Taylor, a "matronly" department store that a fashion-forward 16 year old would NEVER shop in. They also are pricing the bags at price points that 16 year old girls cannot afford without parental help. They are not showcasing the merchandise in a "premier designer" and "fashion forward" way in at least the fp stores I have been in recently. What I mean by this is that they have some clothing, some men's, a LOT of shoes and less bags, all in a store that has not been redone yet to look "fashion forward". It is a very mixed merchandising message and is not a dramatic difference of look for Coach at least in my fp store. (which is supposedly a "flagship" store).

The approach as a whole is making Coach look very very confused.

 

[putmeincoach73]

I was just looking up articles to try to explain to hubby the downfall in Coach's stock over the last year or so, and the reasons for all these changes now, in an attempt to recover (for lack of a better word) both the company, the image, and the stock.

One of the first articles I found is from only a couple days ago. Sept. 9.

Oy.

http://www.thestreet.com/story/1287...-be-affected-by-this-analyst-reiteration.html



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My comment to hubby. ----- "Alienating customers, eh? So who wants to tell these experts about the great feather fob debacle?"

And just for the record, I love Coach. I've always been a fan of Coach. But even if some of us remain as loyal as ever, they still seem to be shooting themselves in the foot. ... Both feet. ... Over and over.
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I agree with this, I am a looooongtime Coach customer, but these prices are rough. $600+ bags? Coach is going to price out its main consumer.

 

[putmeincoach73]

Here is the problem with Coach's new approach as I see it:

Supposedly they want to be a high end premier designer line now in both clothes, shoes, accessories and bags. But...

1. They are still letting mid-market department stores such as Macys and Lord and Taylor carry the supposedly premier bags and accessories. This means that a: the bags will not draw new premier clientele at those stores, since premier clientele are shopping at Barneys and Bergdorfs not Macys and Lord and Taylor, and b: those bags will be discounted along with the rest of the merchandise that stores like Macys and Lord and Taylor sell.

2. They skimped on materials and the bags simply do not look and feel high end. (the Dakota and Tatum lines are somewhat high end feeling so I am excluding them from this comment) This means they will not sell them in large quantities at the full price and they will end up in the outlets, starting the discounting cycle all over again. If for some reason the Vevers bags do not end up at outlets, then they will be heavily discounted in January during the semi-annual sale.

3. Their marketing approach is all over the place. They have 16 year old girls modeling but they are selling the bags at Lord and Taylor, a "matronly" department store that a fashion-forward 16 year old would NEVER shop in. They also are pricing the bags at price points that 16 year old girls cannot afford without parental help. They are not showcasing the merchandise in a "premier designer" and "fashion forward" way in at least the fp stores I have been in recently. What I mean by this is that they have some clothing, some men's, a LOT of shoes and less bags, all in a store that has not been redone yet to look "fashion forward". It is a very mixed merchandising message and is not a dramatic difference of look for Coach at least in my fp store. (which is supposedly a "flagship" store).

The approach as a whole is making Coach look very very confused.

I have the large soft Borough in black, I have to admit, the leather is a bit shiny to me and looks a bit cheap.

 

[p3b]

Interesting articles. Thank you for sharing

 

[crazyforcoach09]

Thanks for posting the articles. It's interesting to watch. I stopped by one of my area FP stores yesterday thinking there would be lots of people out to see the new floor set. I was the only person in the store with 3 SA's and no one else came in the entire time I was there, 20 - 25 minutes. The rest of the mall was busy for 3pm on a Friday.

Same for my three

 

[TejasMama]

Some excellent observations on this thread. Coach could save itself a ton of money if it would have its execs frequent this subform...take notes...and follow the suggestions. Pretty willing to be that the women/customers here know far more about this brand--and what it stands for--than the turntable of executives they keep bringing in to figure things out.

 

[melissatrv]

I think they do have people who monitor the conversations here but they probably have little influence or the execs are not listening. One of the problems of working for large companies, too many "middle managers" to get the ideas/suggestions to the decision makers

 

[Luv2Shop1]

http://blogs.barrons.com/stockstowa...n-buzz-isnt-enough/?mod=yahoobarrons&ru=yahoo

Coach: When Buzz Isn’t Enough
By Ben Levisohn

Wells Fargo’s Paul Lejuez and team note that Coach’s (COH) new designer is helping to create a buzz around the company’s offerings. They worry, however, that it won’t be enough to rescue Coach:


Bloomberg
Coach hosted a fashion week presentation near its headquarters in NYC for the investment community. The Spring 2015 product they showcased was fashion forward (to be sold in 40 stores and online) and intended to create a halo for the brand by generating media coverage and buzz. While the halo is much needed, as the company makes most of its money in factory stores (about 2/3 of U.S. revenue), we are not sure these efforts will be effective…

…Coach already had its share [of buzz] in February 2014 when new designer Stuart Vevers’ first fashion week presentation was met with rave reviews from the fashion press. But it didn’t drive traffic to stores–overall comps in the U.S. decreased 21% in the quarter ending March 2014 (after being down 14% in the prior quarter). The results are certainly not a commentary on Vevers’ actual product, since none of it was in the stores. But if the idea was to create buzz and a halo to drive traffic to stores, it didn’t work then, and we are not sure it will work now…

We remain cautious about Coach’s ability to successfully pull off its brand transformation at this stage in its life cycle. As a result of the attempt at transforming the brand, we continue to expect significant pressure on margins/ROIC as a result of weak sales, although the balance sheet remains in good shape. We are also uncertain if the company’s strategy to reduce promotions will be successful, particularly in the factory channel.

 

[lizmil]

Well they have pretty much lost me as a customer

 

[Kylacove]

Well they have pretty much lost me as a customer

Same here. Increasing prices while decreasing quality is a big turn off. I have enough Coach to last me a long time anyway.

 

[p3b]

Not that they're the same, but JC Penney shot itself in the foot by cutting coupons/sales. It will be interesting to see especially at holiday shopping time

 

[pixiejenna]

Here is the problem with Coach's new approach as I see it:

Supposedly they want to be a high end premier designer line now in both clothes, shoes, accessories and bags. But...

1. They are still letting mid-market department stores such as Macys and Lord and Taylor carry the supposedly premier bags and accessories. This means that a: the bags will not draw new premier clientele at those stores, since premier clientele are shopping at Barneys and Bergdorfs not Macys and Lord and Taylor, and b: those bags will be discounted along with the rest of the merchandise that stores like Macys and Lord and Taylor sell.

2. They skimped on materials and the bags simply do not look and feel high end. (the Dakota and Tatum lines are somewhat high end feeling so I am excluding them from this comment) This means they will not sell them in large quantities at the full price and they will end up in the outlets, starting the discounting cycle all over again. If for some reason the Vevers bags do not end up at outlets, then they will be heavily discounted in January during the semi-annual sale.

3. Their marketing approach is all over the place. They have 16 year old girls modeling but they are selling the bags at Lord and Taylor, a "matronly" department store that a fashion-forward 16 year old would NEVER shop in. They also are pricing the bags at price points that 16 year old girls cannot afford without parental help. They are not showcasing the merchandise in a "premier designer" and "fashion forward" way in at least the fp stores I have been in recently. What I mean by this is that they have some clothing, some men's, a LOT of shoes and less bags, all in a store that has not been redone yet to look "fashion forward". It is a very mixed merchandising message and is not a dramatic difference of look for Coach at least in my fp store. (which is supposedly a "flagship" store).

The approach as a whole is making Coach look very very confused.

These are great points, not only are they over producing their merchandise but it's still for sale at Macy's, Lord & Taylor, and Carsons. If you want to be a bit more exclusive you need to get their stuff at higher end stores like Neiman Marcus, Barneys, & Bergdorfs. Which honestly I don't see happening any time soon.

I also agree about the quality & price issues unfortunately it seems to be a on going trend with all designers lately. The quality of Coach has gone down the leathers they use are nothing like the leathers they used to use. They often look cheap and plastic like and wear incredibly poorly. I used to be a big fan but have only been eye balling stuff for the past few years and have only purchased one bag in that time.

Not that they're the same, but JC Penney shot itself in the foot by cutting coupons/sales. It will be interesting to see especially at holiday shopping time

This is another good point. It's hard to justify the cost of buying a new Coach item at full price knowing that a PCE is around the corner and you can get it for less, wait till Macy's had a handbag sale, or if your really patient wait for it to go to the outlets. It seemed like a lot of people here would wait till they got their PCE's to shop. And how many were disappointed when they couldn't use their PCE on the Bourgh bag? A lot of these PCE shoppers might not know that the PCEs are discontinued so they may see a new bag they like but hold off because they are expecting to get a coupon.

 

[TejasMama]

I think one of the biggest issues is that Coach is trying to make itself an upscale luxury brand while keeping the outlets open and selling heavily discounted bags. Since 2/3 of their revenue comes from the outlet, they need the cash coming in. I don't see how they can have it both ways. It's clear that they don't know much about their customer base and a fancy new ad campaign and a charming British designer aren't enough to save this sinking ship. Love the brand, so it pains me to say it, but I think it's going to get worse before it gets better.