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Coach gives in, announces plans to run sales

June 6, 2014

Consumers of incredibly pricey handbags rejoice! Coach, the largest maker of luxury handbags in America and hater of discounting, has relented and will finally begin to run sales (twice a year).

The two sales, in January and June, will offer discontinued items at discounts of between 30 to 50 percent. In a note to clients, via Bloomberg News, Liz Dunn, an analyst with Macquarie Group, wrote that Coach would run an invitation-only presale between June 6 and 12. Discounts for everyone will begin after that.

While Coach has not discounted items in its U.S. flagship stores, the company's merchandise could be found at sale prices in its factory outlets, at other retailers that sell its products, as well as on flash sales sites.

"We have never seen an outright sale on handbags in Coach stores and we are not entirely sure what the customer reaction will be," wrote Ms. Dunn. "The first sale will likely be met with criticism from the investment community and confusion from customers."

Coach has faced increased competition in recent years while at the same time expanding into other categories including clothing, eyewear, outerwear, shoes and accessories. Comp sales at stores in North America fell 21 percent for the quarter ending March 29.

A Wall Street Journal article published last month suggests that companies such as Coach, despite catering to more affluent consumers, may be suffering ill effects from the Great Recession. According to the piece, "A household at the 95th percentile — one making more than all but the top five percent — made $191,156 in 2012. That was 3.5 percent lower, in real terms, than what they earned in 2006."


Discussion Questions:

What do you think the consumer reaction will be to Coach running sales twice a year? What do you see as the pros and cons of the new approach?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Will running sales twice a year be a net positive or negative for Coach's business?


I think both loyal Coach customers and consumers who are new to the brand will welcome the sale, and see little downside to the sales. For many, Coach is an aspirational brand. The sales will put their products within financial reach. Even the top 5% like a good sale. This will get more people into the stores, will allow Coach to highlight new lines without putting them on sale and will clear out old inventory, all without damaging the Coach brand. It's a smart decision by Coach management.

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Max Goldberg, President, Max Goldberg & Associates

This is not so much a sale as a clearance event. It makes sense for Coach to purge its old inventory to make room for new styles and to draw traffic. However, it's not clear from the Bloomberg article whether this affects department store accounts' Coach shops or simply the brand's own stores.

But anybody on the mailing list has received coupons to save an extra 25% (including regular-priced goods, not just clearance) for several years, so I'm not sure this is quite the game-changer for Coach that it first appears.

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Dick Seesel, Principal, Retailing In Focus LLC

It's time. Reducing the price of discontinued items is not the same as placing seasonal items on sale in most retail stores. So Coach will still have its high-end luxury status. Now the only other issue is the knock offs...will they go on sale too?!

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Frank Riso, Principal, Frank Riso Associates, LLC

This article is particularly personal for me. I am soooo happy that Coach no longer covers all its bags with CCCCCCC. It's never had the same panache as Chanel, LV or Fendi, but it's always had well constructed and over the years more stylish products.

As the article mentioned Coach has been available at discount in outlets. Further, department stores have Coach sales for friends and family promotions. I think Coach is smart to leverage the demand for its products by having sales.

Quite frankly, I've received offers for discounts in their flagship stores. If they've analyzed the results of those offers they can anticipate how news of their sales will be received...at least by customers.

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Joan Treistman, President, The Treistman Group LLC

It won't do much other than to reduce the net revenue per bag even lower. And Ms. Dunn is right, the investment community is giving them heck for it. Or more correctly stated, even more heck. The current management team seems to have lost its way with maintaining the brand value and company profitability. This won't help either situation.

By the same token, it won't hurt the brand either. Many quality apparel makers have run "loyal customer shopping days," "factory second sales," and other shadow discounting programs for years. Allen Edmunds comes to mind as one who does a particularly good job in this arena.

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Ben Ball, Senior Vice President, Dechert-Hampe

Who doesn't like a good sale ... on any brand?

Coach has done an admirable job of using outlet mall stores to sell discontinued lines and overstocks at discounted prices. That has been a safe way for Coach (and many other premier brands) to preserve brand image an introduce it to aspirational consumers at more affordable prices.

Running Coach sales twice a year will definitely reach more consumers and loyal customers. But how many brands have gone down the slippery slope of chasing even more volume by running more sales?

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Dear Coach,

Please don't get seduced by the increased traffic and sales these sales will bring in the short term, as most other retailers have. Your brand will suffer, not to mention your margin too.

So, go ahead and clear out the product that nobody wanted anyway. Then get back to being the great brand that you are.

See you after the sales are over.

Your loyal, and true customer.

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Kevin Graff, President, Graff Retail

A very risky move. Needs to decide whether it is a luxury designer bag or a promotional product. It's okay to sell last year's styles in its outlet stores. It is a different proposition altogether to offer such large discounts twice a year in upscale retailers. You can sell it to class or sell it to mass, but you can't do both. Coach needs to decide which target it intends to pursue with appropriate designs and pricing.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

Coach is clearly in midst of an identity crisis on so many levels - pricing, design, core customer. To call these planned twice yearly events sales seems to distort what they really are, a clearance vehicle to rid the company of discontinued inventory. A better example of a well-executed sales model would be Nordstrom's half-yearly sales.

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Kelly Tackett, Retail Analyst, Independent

The recession had a huge impact on the industry. Suddenly, buying off-price merchandise was mainstream, even chic. And while the brands that advertise in Town & Country will never discount, the brands that cater to the 99% have had to adapt. (Look at Abercrombie's slide in popularity.) I don't see this changing any time soon.

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Cathy Hotka, Principal, Cathy Hotka & Associates

So, you are the largest maker of handbags in America and the hater of discounts? Why would you change? This is a very slippery slope that retailers have slipped down. Coach is considered on of the luxury brands in the U.S. Luxury brands don't discount. They are aspirational. Either you have enough money or you save for a long time to buy Coach.

So what does management do? "Gee, we had two sales and did great. Would we do greater if we had 4? 6? 8?"

I advise Coach to be very careful. An excess of marginal contribution (that is what a sale is) becomes ongoing margin.

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Gene Detroyer, Professor, Independent

A brand in trouble discounts and announces it as a good thing. It is a slippery slope Coach started in 2009 when they started passing out coupons on the street. I would suggest management is scared.

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Bob Phibbs, President/CEO, The Retail Doctor

Offering their discontinued and sale items to existing loyal clients beforehand will be perceived as a reward and will serve to motivate more of that loyal behavior.

Opening up the brand to customers who choose not to shop there due to price will certainly expand their reach, but more importantly will allow them to control where their less successful, or overstocked goods are sold. Better their stores capture this revenue than some close-out channel.

For many years other chains have found a "clean" approach to running bi-annual sales to be effective, provided the timeline is tight and their standards are adhered to.

John Hyman, Overseer of Order, Zen Marketing Inc.

Given the extensive network of Coach outlet stores already established, it would be quite silly of investors to punish coach for this move. Consumers already have integrated into their brand karma the opportunity to get Coach phased out product at reduced prices.

Besides, in my local focus group of one, my wife, a dedicate Coach enthusiast, has already planned her shopping at the sale.

Doug Garnett, Founder & CEO, Atomic Direct

One of Coach's challenges is that it isn't a true luxury brand and therefore is more vulnerable to recessionary dynamics. Even fashion and investor darling, Michael Kors, is reporting steep margin declines, even as it steals market share from Coach. Kors is better positioned overall due to its balanced accessories business, strength in both women's and men's fashion, and as it aggressively expands its global retail footprint. Kors' impact on Coach's business can't be underestimated.

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Carol Spieckerman, President, Spieckerman Retail

Consumers will take this in stride and for some it will give them a reason to check back in to their Coach stores. Dedicated bargain hunters were already finding marked down Coach product at the channels mentioned in the article.

For a brand retailer with both full-line stores and outlets this approach makes sense. Pre-clearing end-of-season merchandise in the full line stores before sending the true remainders to the outlets raises the overall efficiency and profitability of the chain. The outlets will now have an opportunity to raise the amount of planned production in their sales mix (also more profitable).

My team implemented this strategy in 2007 for a brand retailer that had never been promotional before and it had a positive impact on the business without diluting the brand.

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Martin Mehalchin, Partner, Lenati, LLC

The core Coach customer base - those with the highest degree of brand advocacy - will likely welcome this with open arms. Given the availability of Coach handbags at outlets and discounted online, there really won't be any erosion of brand equity.

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Jeff Hall, President, Second To None

Coach has been running sales for years. Coach operated over 150 factory stores that sell Coach products at a substantial discount. Amazon has been selling Coach for years. Anyone who has wanted Coach at a discount has been able to find it for years. I think Coach's problem is that Coach can be had on the cheap. It has lost some of its cachet. You don't see LV setting up outlet stores. Real luxury retailers don't discount!

Ed Dennis, Sales, Dennis Enterprises

There will be lineups at the store and people will flock in. There will be a new customer who might not have normally shopped Coach, and some percentage of the existing customers will wait for sales, but probably buy twice as much as they used to with a higher total spend.

As long as the product stays consistent with the brand promise, it will work out in the end. Now 3 sales a year...that's erosion.

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Peter J. Charness, SVP America, Global CMO, TXT Group

With comp store sales down 20%+, this reeks of desperation and reminds me of a headline in "Marketing Week" (UK) yesterday that reads, "Asos found out the hard way that resorting to promotions rarely has a happy ending."

My guess is that Coach has no idea what its Comp Customer sales changes are, but this is a slippery slope and think the financial markets are right on this one.

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Phil Rubin, CEO, rDialogue

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