Whether it’s categories or markets, Coach Inc. sees vast opportunity.
Speaking Wednesday at a Robert W. Baird & Co. conference, Coach chairman and chief executive officer Victor Luis spoke about the $41 billion global handbag and accessories market, and how “there’s not a more exciting place in the fashion world than handbags and accessories.”
He also discussed how Coach could play an important role in both innovation and the creation of the “emotional connection” with consumers in a purchase category that “most closely identifies with their personality.”
Coach on Tuesday priced its $1 billion senior unsecured notes, consisting of $400 million at 3 percent for notes due 2022 and $600 million at 4.125 percent for notes due in 2027. The offering is expected to close on June 20, 2017. The proceeds will be used to help fund the Kate Spade acquisition.
Luis said that in the short-term, the company likely would not be eyeing another large transaction, but it could in the same period look at smaller deals such as buying back a distributor in certain markets.
As for future growth, Luis said: “We see an opportunity for it within the Stuart Weitzman brand [and] in the deal that we’ve just announced with Kate Spade….It’s a very emotional category, where obviously women, and increasingly men, still invest their dollars. And we see a continuance of the cyclical shift away from apparel towards accessories globally.”
Luis noted the work of the past three years from elevating the core Coach brand to investing in 70 percent of its store fleet. “If some of our competitors decide they need to pull back, whether that be on distribution or whether that be on pricing, a lot of actions that we’ve already undertaken, we feel that any actions that anyone takes to drive more overall health of the category is a good thing,” the ceo said.
He also spoke about growth overseas, in both developed and developing markets. One example he cited was the mainland Chinese consumer, noting that Coach has been working on developing the brand in the domestic market as the consumer has been doing more shopping close to home.
“We have a market, which is one of the largest in the world in terms of new consumers coming into the middle class, [where] we’ve had tremendous success continuing to grow our distribution there as we look at Tier 3, Tier 4 cities, with more than 200 cities [having] the population of one million or more. We’re not even close to being in approximately 30 percent of those cities at the moment,” the ceo said.
As for other parts of Asia, Luis noted “tremendous opportunity across Southeast Asia, and we’re focused on capturing that opportunity today through distribution partners.” He said Europe represents a $9 billion opportunity, and it is one where consumers are just “discovering the more approachable luxury brands.” Luis added: “One of our U.S. competitors has had great success there, and we’re in the very early stages of developing that opportunity for us.”
Luis also said Coach is on track to introduce a footwear line developed internally within a couple of months. Footwear is an opportunity for the firm because the category is a $28 billion global market, he said. And designer Stuart Vevers is developing an outerwear business for the Coach brand. Luis said the outerwear category is a $10 billion global market.
Combined with the $41 billion handbag market, Luis said there is an “$80 billion global opportunity that, obviously across our three brands, we’re looking to lever against.”