Coach is on the brink of a turnaround, amid declarations that the handbag category is failing.
“Although many investors remain sceptical about both the handbag space and Coach’s recovery itself, we continue to believe that Coach’s turnaround is imminent and likely to drive stock upside as improvements occur first in top-line performance at retail, later followed by outlets” Wells Fargo Securities analysts wrote in a recent research note.
The company has been working to undo damage to help salvage its business.
The work might be paying off, as Wells Fargo has noted five components that will contribute to the retailer’s comeback.
1. A better selection of products
Wells Fargo says that Coach will have a better mix of products, particularly “more giftable sub-$300 price point bags” that are full price.
Coach has faltered as it has become too ubiquitous and reliant on its outlet stores, but a strong selection of full-price products within a reasonable price range for young consumers could help the brand.
2. New products from Stuart Vevers will be in the factory stores
Stuart Vevers, who joined the company as creative director in 2013, has been making waves with his designs. “Stuart Vevers’ new products have been very well received by customers across geographies,” CEO Victor Luis said on an earnings call in October. Now, his products will be more accessible to a wider range of consumers.
3. Updated stores
Coach has been working to renovate its stores to what the brand is calling a “Modern Luxury” concept.
“On stores, we’re continuing to establish our new Modern Luxury concept stores globally, renovating and opening over 30 during the quarter and we are on target to end the year at 40% of our doors in the new format. Consistent with plans, these renovations have been driving significant inflections from previous trends and comps, which exceeded the balance of the fleet in the vast majority of stores around the world,” Luis said on an earnings call in late October.
4. Marketing campaigns that resonate with its core audience
In a research note from this November, Wells Fargo pointed to two strong examples of this: using popular actress Chloe Grace Moretz, as well as its “COACH PUPS campaign,” which asked consumers to post photos of their dogs in Coach bags on Instagram. The campaign featured Lady Gaga’s pet dog and Instagram star, Asia Kinney. This indicates that Coach is trying to reach a young audience (although, dogs are arguably universally appealing).
5. Michael Kors’ problems
Wells Fargo wrote that Coach had “ongoing share gain opportunities via negative comps at their largest peer (Michael Kors).” If people aren’t buying Michael Kors’ products, then it gives Coach room to hold a bigger share of the accessible luxury market.
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