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Doing the Continental

Coach takes lessons learned in Japan to Europe and other new markets.

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Special Issue
WWD Milestones issue 09/26/2011

When Coach pulled into Mayfair early this month, opening a 5,000-square-foot flagship at 41 New Bond Street, its arrival was a victory, of sorts.

In the late Eighties, the brand had tried — and failed — to bring the business to London, and had shunned Europe for more than two decades, preferring instead to focus on the U.S. and Japan.

After that unsuccessful foray, Coach returned to Europe with a bang, having learned valuable lessons in international retailing from keeping a close eye on the Japanese consumer.

“For many years, our international strategy was focused solely on building the business in Japan, and following Japanese consumers wherever they purchased around the world,” said Ian Bickley, president of Coach International. “That opportunity was substantial, and we wanted to make sure we did it right. Today, we’re the second-largest imported bag and accessory brand in Japan, after Louis Vuitton, and we have a 17 percent market share. Now, we’re trying to replicate that success globally.”

Today, some 90 percent of Coach’s sales come from the U.S. and Japan, but that’s set to change over the next five years as the brand expands into China, Europe, the Far East and South America. “Today, the international business accounts for a little less than 30 percent of Coach’s sales. But we are looking over the next five years for 50 percent of our growth to come from international businesses, and for that business to account for 40 percent of sales,” he said.

China was the next big step for Coach after Japan, and it is now its fastest-growing business. Three years ago, Coach bought back the business in China, Hong Kong and Macau from its local partners, and since then has been operating the business directly. There are 66 Coach locations in China, including 53 sites on the Mainland in 22 cities; 11 in Hong Kong, and two in Macau.

With the Chinese business moving at full throttle, Coach has begun to turn its attention, once again, to Europe.

“It represents 25 percent of the global accessories market, and is the biggest total white space for Coach,” said Bickley, adding that the brand’s plan is to grab 3 to 5 percent of that market share over the next several years. “We have almost no market share today, so the focus is now on Europe. And the U.K. is going to be a very significant part of the European business.”

Last year, the company began to make inroads in the region via a 50-50 joint venture with British men’s wear brand Hackett in the U.K., Ireland, Spain and Portugal. In addition, it inked a three-year exclusive distribution deal with Printemps to expand in France. Last year, Coach opened its first boutique at El Corte Inglés in Madrid, and will shortly have nine in-store shops at Printemps.

“In France, the agreement is to open 16 locations over three years, and later this month we’re planning to open our first men’s-only location at the Boulevard Haussmann store,” said Bickley. “We’re enjoying year-on-year double-digit growth at the Haussmann location. We’re pleased with the growth both with the French consumer as well as the business we’re doing with international tourists.”

Coach chairman and chief executive officer Lew Frankfort has said that Coach was aiming for a $250 million European business in five years’ time.

Coach’s flagship on Bond Street — its first in Europe — is the brand’s second London store. A 3,000-square-foot unit opened at the Westfield mall this year. Bickley said he’s already scouting space on Regent Street for a third store and is hammering out a wholesale distribution plan with department stores. Industry sources said Coach is mulling units in Knightsbridge and a men’s shop in Canary Wharf, although these projects were not confirmed.

Bickley calls the Bond Street store “a beacon for the brand. It allows us to bring the whole world of Coach to the U.K., to showcase it not only as an accessories brand, but as a lifestyle one. We feel the opportunity for Coach in Europe is significant, and we are here for the long term.”

Beyond Europe, Bickley said other “substantial opportunities” include Brazil, where Coach inked a deal last month with Aste Group, which works with brands including The North Face and Kipling. That deal will enable Coach to expand into freestanding stores in local shopping centers. Coach’s first stores in the market are set for São Paulo, and units in Rio de Janeiro and Brasilia will follow.

“Brazil is one of the largest and fastest-growing economies in the world. They love fashion, they have a rapidly emerging middle class. Their currency has appreciated. It’s a big domestic opportunity for us, and an opportunity to capitalize on Brazilians when they are traveling,” he said.

At the same time, as part of Coach’s ongoing strategy to expand in Asia, the brand also signed a deal in Vietnam with Luxasia Group. Coach plans to open boutiques in Ho Chi Minh City and Hanoi before the end of the calendar year.

 

 

Bickley said Coach’s international expansion strategy has been consistent from Day One.

“Focusing on the big opportunities and trying to do them sequentially has been a big part of our success. Another big [component] has been our willingness to do our homework on a market before entering. We look at the retail landscape and look at what the opportunity is from the ground up,” he said. “Who’s the consumer? We organize focus groups, and inform ourselves about the size of the opportunity and what aspects of the brand will really resonate with consumers there. A lot of brands don’t go through that exercise before they go in. We’ve also had a real success in entering new markets with local partners.”

It hasn’t all been rosy: Coach’s first foray into the U.K. was a flop. There was little brand awareness, an unfavorable dollar-pound exchange rate — which made prices skyrocket — and a limited product assortment. The merchandise offer was much smaller, and Coach had no local partners, preferring to run the business remotely from New York. “We’re coming back to the market now with a more lifestyle proposition and we’re able to tell the story of our New York heritage,” said Bickley. “And the whole value proposition is more relevant today for Europe.”

Alessandro Hor, senior analyst at the London-based Dominion Group, which invests in Coach through its CHIC fund of retail and luxury stocks, is bullish on the brand’s expansion plans.

“Coach is expanding faster in the Far East than in Europe. In our view the company faces two key challenges: Move the brand further up-market in Europe and Asia, and expand production into contiguous product areas. The company has already licensed the Coach brand for footwear, watches, and eyewear and has launched a perfume and Bijoux range,” he said. “Coach is still not recognized as a direct competitor of LVMH, Gucci or Prada in Europe, but it is much closer to them in Asia, where it is seen as a true luxury brand.”

Bickley said Coach’s end game is to be a market leader in each of the countries it enters, and one of its secret weapons is service. “It’s one of the key things that differentiates us from some of the traditional luxury brands,” he said. “When you walk into a Coach store, everything about our brand is accessibility. The product is easy to touch and feel. Our associates encourage people to try bags on. The products are accessibly priced. The stores are warm, inviting, friendly. Our staff greets consumers as if they were guests in our homes.”

Erika Maschmeyer, senior research analyst at Robert W. Baird & Co., said the company is thoughtful on a variety of levels — not just in-store service. “They really provide a handbag for every woman; they want the daughter, the mom and the grandma to walk into a store and all find something — and that’s really smart.”

She said Coach’s attention to research in new markets is also impressive: “Very few companies will do as much research as Coach does before entering a new market. Some of the larger companies move fast with franchises, but Coach doesn’t do that.”

She added that while China is Coach’s biggest opportunity right now, Europe is the second-most intriguing. “And they’re going about it in a very smart way, moving at a thoughtful and measured pace.”

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