With a series of major initiatives, the company seeks improvement on the global stage while restructuring its North American business, including plans to close 70 full-price stores and a revamp of its outlet business.
That’s the word from Coach executives during its analyst and investor day presentation on Thursday. The company is also projecting for fiscal 2015 low-double-digit revenue declines, as well as a high-teens comparable-store sales decrease for its North American stores.
Investors were not happy, and responded by sending shares of Coach down 8.9 percent Thursday to close at $35.69 on the New York Stock Exchange.
Chief financial officer Jane Nielsen told analysts and investors, “We are not satisfied with our current performance.” She went on to describe a five-year plan as a “concentrated period of investment” aimed at driving sustainable revenue growth in part through a replatforming of stores; supporting high, stable gross margin, and optimizing productivity. The plan will impact international and domestic aspects of the business; cost between $250 million and $300 million, and occur during fiscal years 2014 and 2015.
As for its full-price stores, the firm is planning to shutter 70 underperforming North American sites, with the closures expected to be finalized by the first half of the 2015 fiscal year.
“The overarching objective is to change brand perception from accessible luxury to modern luxury,” said Francine Della Badia, president of North America retail.
Further, the stores in general will see new concepts to match the more fashion-forward agenda of creative director Stuart Vevers, with the first renovations slated for November. The top 12 North American markets will be among the first for investment in flagship and fleet renovations, with the rollout to other markets in the second half of fiscal year 2015. The company, which is also looking for a new Fifth Avenue flagship site in New York, plans to move to a semiannual sales model when it comes to in-store promotions.
On the outlet front, Coach intends to close two existing outlet stores, and open 10 dual-gender locations. In addition, 13 men’s stores will be consolidated into existing women’s stores. The company’s goal for its outlet concept is to increase the relevance of its factory product. Vevers will introduce outlet items that are more in tune with the brand’s main ready-to-wear and accessories line.
To that goal, a main design objective is to shift out of the brand’s signature logo designs, particularly in handbag offerings, and offer more leather goods. Outlet stores will also move to de-emphasize promotional pricing strategies in order to drive the discount rate down and move ticket prices up. A similar strategy will be implemented within department and wholesale stores by discontinuing promotional in-store “Coach days,” which offer additional sales on Coach products. Coach’s electronic outlet store will also be revamped in early 2015.
Coach is eyeing China for much of its international growth, where the brand has jumped to number three in 2013 from eighth in market share rank in 2008. “We see China as the next $1 billion business for Coach,” said Ian Bickley, president of the international group. Bickley added that China’s sales increased by a compound annual rate of 70 percent over the past five years. There are 147 Coach locations in 52 cities, including the Mainland, Hong Kong and Macau. Coach also plans to renovate and add flagships in key cities, such as London, Paris, Milan, Dubai, Singapore, Beijing and Melbourne, over the next two to three years.
Vevers said his aim is to “redefine and to reestablish Coach’s unique place in the market.” He noted that Coach “must design desirable products that become icons with our brand codes.” The company is planning a two-part advertising campaign for the fall offerings.
The company’s initiatives are geared toward achieving gross margin at 69 to 70 percent and operating margin at 20 to 25 percent by 2017, and become “best in class” by 2019.
“We’re creating an aspirational identity for all of our customers,” said chief executive officer Victor Luis during the question-and-answer period. Luis emphasized that the company’s message is “about evolving the Coach brand. It’s not about the next ‘It’ bag that we’re launching or the next ‘It’ collection. It’s about, at the end of the day, how we evolve the brand over this journey that we are on.”
Citigroup’s analyst Oliver Chen said, “Our view is that the strategy and new product look strong; however, visibility on timing and achievability of lower guidance still remain a risk as each new piece of the strategy carries risk given new product collection structure, dramatically different marketing campaigns, product shifts in outlet and a differentiated selling environment. We are hopeful but remain cautious, even with the best product and marketing and store experience the traffic comeback may not be easy.”
Jefferies analyst Randal J. Konik, who has a “hold” rating on shares of Coach, said it’s clear that “Coach’s challenges go beyond just product.”
The analyst concluded that the “bottom line is that a turnaround here is going to take a long time. Competition is fiercer than ever, which will continue to pressure same-store sales, margins and earnings until new initiatives take hold.”
He also noted that the “company has numerous initiatives in play to transform the brand’s appeal, including rejuvenating product, bolstering competitive messaging and closing stores. However, the substantial shift in the competitive landscape won’t be easy to reverse, and it will take time for these strategies to fully unfold.”
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast