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Transformative Change Is Coming To Coach

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Reversing Coach’s Fortunes

In Part 4 of this series, we learned that although Coach, Inc. (COH) has several opportunities on the table, it’s been steadily losing market share in its key home market, the US. To stem the decline in same-store sales and lost market share, the company announced a multi-year “Transformational Plan” in 2014.

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Brand transformation

Coach is known worldwide primarily as a handbag and accessories maker. It’s now looking to offer a complete premium lifestyle brand for both men and women. Other lifestyle brands in the industry include Ralph Lauren (RL), Michael Kors (KORS), and Kate Spade (KATE). A lifestyle brand offers products across categories, and may include apparel, footwear, fashion accessories, home furnishings, and household items, among other things.

Handbags are a core product category for Coach, accounting for 55% of revenues in fiscal year 2014. The company plans to transition out of its logo handbags and focus more on leather products and accessories.

The company’s product selection includes watches, footwear, and eyewear, among other things, but these aren’t core categories. Coach is looking to step into other avenues in a bigger way.

On January 6, 2015, Coach announced it was acquiring premium footwear company Stuart Weitzman for about $574 million. For more on a possible deal and its implications, read Parts 17 and 18.

Retail revamp

As part of its transformation, Coach has earmarked investments of ~$570 million over the next few years to improve the look of existing stores (XRT), particularly flagship stores in North America and abroad. The new look is swankier, portraying the brand’s history while at the same time trying to appeal to a more premium clientele.

Coach is also looking to right-size its retail footprint by closing ~70 underperforming stores and opening new stores in select catchment areas. For more on its retail strategies and sales channels, read Parts 6 and 7.

Inventory realignment

Store inventory is to be brought in line with customer requirements at retail stores and factory outlets. Unsold inventory has been a big issue with the brand in the past, particularly when it’s failed to anticipate fashion trends. Deep discounting by rivals also resulted in lower sales for Coach. Aligning inventory with customer requirements and tilting the brand toward higher-priced handbags should help improve margins.

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