Coach is still hurting.
For the second quarter of fiscal 2016, the brand announced poor results in the US.
In North America, comparable sales declined 4% and overall brand sales dipped 7%. Internationally, overall brand sales increased by 4%.
The retailer has updated stores and scaled back on discounts, but despite these efforts, the brand is still in transition. These results might be growing pains.
But amid Coach’s transition, there’s a bigger threat at large: handbags are losing their lustre.
According to a recent study executed by Goldman Sachs and Teen Vogue, most brands that design accessible luxury handbags are “falling flat,” and becoming less and less appealing to so-called “it girls,” ages 13-29.
Coach, in particular, is a victim of this trend. According to Goldman Sachs’ report, it’s the most “well-owned” brand among it girls, followed by Michael Kors bags, meaning that it is more widely available, and therefore, less exclusive.
“In our view, while Coach is far from being a completely broken brand it remains in transition,”
Håkon Helgesen, retail analyst at research firm Conlumino, wrote in a note to clients.
“In trying to move from a position of ubiquity and volume fuelled by promotions, it is struggling to regain the premium, more niche status it once held. As such it is currently stuck in something of a netherworld that is inflicting a measure of financial pain.”
“Admittedly, with Coach’s restructuring efforts and its attempts to move away from excessive discounting, some deterioration to the topline is to be expected,” Helgesen wrote.
Overall, the handbag industry is dim in comparison to other industries. More of the cool young women polled by Goldman Sachs and Teen Vogue preferred to spend their money on athletic wear brands and beauty companies.
Teens and young people, for the most part, prefer to not spend their money on luxurious items, and moreover, they don’t even want fancy gifts. Even wealthy teens prefer practicality over luxury.
“While the more affluent Gen Z might request luxury item gifts, most of Gen Z wants a very different kind of luxury item today. If Gen Z wants a luxury item, it’s going to be more practical than jewellery from Tiffany or an old traditional brand,” Gen Z expert Nancy Nessel told Business Insider in an email.
This massive shift in spending has effected other luxury brands, such as Tiffany & Co., which saw sales take a nosedive over the holiday season.
However, it’s worth pointing out that Coach may not be doomed. Wells Fargo Securities analysts wrote in a recent note to clients that Coach’s turnaround is “imminent,”
pointing to the brand’s latest marketing schemes, renovated stores, better products, Stuart Vevers’ products, and an ailing Michael Kors, as signs the brand is on the path to improving its sales.
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