Coach is Shrinking to Grow

coach-bags 730x280.jpgEvery day now, there seems to be news of some long-revered retailers’ protracted decline. And yes, we get it—those type of headlines drive more eyeballs. 

But that’s why it’s so refreshing to see multiple reports this week about the continued success of Coach, when by all media accounts, traditional retailers, and in particular, luxury retailers, are a few bad quarters away from closing up shop permanently.

Most analysts attribute Coach’s success to a “shrink to grow” strategy, in which the retailer more or less went back to basics. Most notably, Coach pulled out of failing department stores, eliminated most sales and discounts, and created a storefront more appealing to younger shoppers.

From CNBC: “An important takeaway from Tuesday's earnings report: Coach is one of the only companies today that is successfully ‘shrinking to grow,’ [Nomura Instinet's Simeon] Siegel said, referring to how Coach's shuttering of some stores has helped boost profits. The company has positioned itself ‘where you want to be in this new norm of retail.’”

How they did it, in their own words

On May 2nd, The Street interviewed Coach CEO Victor Luis to find out what’s driving Coach’s recent success.  We highly encourage you to read the entire interview, but we’ve selected two of the most telling answers:

Q: What could retail executives going through tough times right now learn from Coach's turnaround?   

Luis: The difference is that we aren't focused on being a retailer. Our focus has been on the brand, and everything that goes into creating an emotional connection between our brand and the consumer. Such as great product and store experience. At the end of the day, the brand exists in the minds of consumers.

We have been working incredibly hard on two fronts. First, reducing the short-term negative activities that may impact the brand in the minds of the consumers. And also building positive relationships through product, stores and marketing. 

Q: Have you ever seen things as bad in retail as they currently are right now?

Luis: If I think about what has been happening across channels, whether that be the department store channel or some specialty retailers in the U.S. who are more exposed to department stores, there is no doubt there is a very substantial structural shift happening in retail. But I would just caution us to not look at as bricks-and-mortar retail is dead, they're not. Nor would I say retail is dying, because it's not, total retail sales are growing. I would also argue that great brands still have tremendous opportunity to grow by creating those emotional connections with consumers. It comes down to growing great brands, and managing distribution and pricing well. 

Takeaways

The ubiquity of Coach’s product—both through availability in department stores and by way of sales and discounts—served to cheapen the company’s brand. But by “going small” and paying attention to what customers are actually after (a better in-store experience, greater exclusivity, etc.) they were able to thrive in an otherwise down luxury retail market.

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Topics: retail stores, coach, accessories

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