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Can Coach Overcome these Department Store Headwinds in 4Q15?

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Coach days at wholesale channels discontinued

Coach’s (COH) sales in the department store channel declined 30% year-over-year in the last quarter, partly due to the discontinuation of Coach Days at department stores. In contrast, there were 30 such days in the comparative quarter of the previous year, according to Victor Luis, Coach’s CEO.

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Department stores sales trends

That being said, both Macy’s (M) and Nordstrom (JWN) management discussed the higher promotional environment characterizing handbags merchandise in their last respective earnings calls.[1. According to comments by Macy’s CFO, Karen M. Hoguet, and the co-president of Nordstrom, Pete Nordstrom]

Higher investment

But despite headwinds, Coach is increasing its investment in department store formats. Coach has ~1,000 locations at nationwide retailers like Macy’s (M), Nordstrom (JWN), Dillard’s (DDS), and The Bay (HBC.TO). Product assortment at wholesale channels is also customized to meet the local market’s requirements.

Coach expects the size of the premium women’s handbag and accessories market to grow at a CAGR[2. Compound annual growth rate] of 7% over the coming quarters. Coach is converting ~300 stores in the channel to an “open sell” environment, believed to be more open and shopper-friendly. The company is also premiumizing its shop-in-shop environment at its stores. It’s also looking to add 30 new stores this year, resulting in a slight increase in square footage in this channel in fiscal 2015, according to comments by Luis.

Macy’s (M), Nordstrom (JWN), and Dillard’s (DDS) together constitute ~3% of the portfolio holdings of the SPDR S&P Retail ETF (XRT). Coach (COH), Macy’s (M), and Nordstrom (JWN) together constitute ~1.8% of the portfolio holdings in the Consumer Discretionary Select Sector SPDR (XLY).

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