Things have started to click for Victor Luis, chief executive officer of Coach Inc., the $4.2 billion fashion and accessories firm.
Luis is leading what he described as the company’s “third chapter,” the creation of a modern luxury brand. Spearheading the 75-year-old company’s transformation strategy, Luis seeks to innovate the brand along all consumer touch points, evolving its products, retail store format and marketing campaigns.
Having joined Coach in 2006 as president and ceo of Coach Japan, Luis’ responsibilities expanded to include ceo of Coach China, president for Coach Retail International, and eventually overseeing all of Coach’s operations outside of North America.
In 2013, he was named president and chief commercial officer of Coach, with oversight for all of the company’s revenue-generating units, strategy and merchandising. The following year, he was named Coach ceo, succeeding Lew Frankfort, a 35-year company veteran who served as chairman and ceo from 1995 to 2014, and who catapulted the firm into a commercial powerhouse during his tenure.
WWD sat down with Luis at the company’s new 750,000-square-foot Hudson Yards headquarters and in a broad-sweeping interview, he spoke about the shape the brand was in when he took over, ground-breaking new initiatives, and his vision for Coach.
“Our strategic agenda from my start as ceo was about transforming the brand and [the evolution of] its image in the mind of the consumer,” Luis said. That has included the introduction of a higher-priced line, Coach 1941, for better distribution; a new marketing campaign; new leathers and materials for Coach; cutting back wholesale distribution, and a retail rollout of its modern luxury format. Last month, Coach said it would take back its footwear license from Jimlar Corp. and starting in the summer, it will design, develop and distribute its footwear in-house.
After a series of difficult quarters, store closures and layoffs, Luis’ initiatives have begun to yield positive results.
“At the end of the last fiscal year, the fourth quarter, we finally got back to positive comps in North America. It was the first quarter in over three years in which all of our financial metrics showed growth,” Luis said.
This month, Coach again reported continued positive comparable-store sales in North America and growth internationally. For the three months ended Oct. 1, net income increased 21.8 percent to $117.4 million from $96.4 million a year ago. Net sales were up 0.7 percent to $1.04 billion from $1.03 billion.
One of the most significant developments on Luis’ watch was advancing the company from a single Coach brand to a multibranded company, with the acquisition of Stuart Weitzman in May 2015 and the launch of Coach 1941 that September. Equally important was naming Stuart Vevers executive creative director of Coach in September 2013. Vevers took over responsibilities from Reed Krakoff, former executive creative director and president, who stepped down from the brand after a successful 16-year tenure.
Vevers energized the brand, updated its aesthetic and product offerings to be more luxe and fashion-driven.
After an extensive search, Luis said he decided on Vevers for several reasons: “He had helped and guided brands through their own transformations, in the case of Mulberry and Loewe [where he was creative director]. He worked at Louis Vuitton and saw brands go through transformations, brands that were born in the leather goods space and evolved to be broader lifestyle brands.”
Giving a visitor a quick synopsis of the company’s history, Luis described the “first chapter” of Coach as a very traditional house of American leather. He said the bags were known for their great quality and were manufactured and designed in New York. The brand then evolved (“second chapter”) in the late Nineties and early 2000s “into a little bit more of a fashion house.” Coach added some fun, some femininity and new materials to its mix, and the business grew dramatically from 2000 — at the time of its initial public offering — through 2010, 2011 and 2012.
“We grew very quickly from approximately $500 million to almost $5 billion,” Luis said. Between 2000 and 2007, the company didn’t have a tremendous amount of competition, and the brand was defined as “accessible luxury.” Then a flurry of competitors entered the market, and Luis said Coach didn’t evolve as quickly and effectively as it should have compared to its competitive set, especially in the U.S., which is the company’s most mature market.
Fast-forward to today, where the company’s transformation is primarily about developing the brand’s fashion credibility and telling a “very authentic” story that separates it from its competitors. The fact that the brand began as a manufacturer in New York with six craftsmen is something that other firms, such as Michael Kors and Kate Spade, can’t claim, he said. He also said the brand differentiates itself from its European competitors that rely more on exclusivity.
Luis admitted it was a challenging period when he took over as ceo in 2014.
“We were obviously at a point where growth had stalled,” he said. Observers said the brand, which had become overdistributed, too logo-driven and was constantly being promoted, was also in too many outlet stores. Once Vevers came on board, the team started working on the product, adding leathers and hardware, and the company introduced a branding campaign under Fabien Baron of Baron and Baron, photographer Steven Meisel and Karl Templer, who styled the ads.
Coach introduced its modern luxury concept, which was based on the firm’s DNA, to its freestanding stores. The look reflected the first Coach store, which was inspired by the New York Public Library and the warmth of its wood. The company will have nearly 700 locations globally in the new concept by the end of the fiscal year. Overall, Coach has 431 freestanding stores in the U.S.
Over the past several years, Coach has cut back distribution in department stores. “Specifically in North America, that channel has become increasingly promotional and very difficult to control from a pricing perspective,” he said. By the end of the fiscal year, the company plans to reduce its door count by 250 locations from approximately 1,000, eliminating the least productive stores. That follows an earlier cutback in the mid-2000s, when Coach reduced its door count to 1,000, from 1,900 doors.
He also plans to partner with department stores to reduce the number of promotions around the Coach brand. At present, wholesale accounts for only 5 percent of the company’s North American business.
Elaborating on the significance of Coach 1941, Luis said it not only allowed the firm to have its first fashion shows during New York Fashion Week, but also provide entry into better specialty stores and higher-end department stores in North America, including Neiman Marcus and Nordstrom. Coach 1941 women’s apparel, outerwear, accessories, footwear and handbags were introduced last fall for spring retailing.
“Coach 1941 allows us to speak to a consumer who’s a little more fashion-engaged and allows us to provide the finer department stores with a line exclusive to them and not widely distributed across all of wholesale,” Luis said. He noted that Coach 1941 is becoming an increasingly important part of the company’s total business in North America and globally. All of Coach’s full-price stores around the globe will carry the label.
Coach 1941 is also viewed as a laboratory for innovation. “It’s where Stuart and his design team can dream and experiment with the entire palette of Coach — materials, color, print, across ready-to-wear, handbags, accessories, jewelry and really continue to evolve the Coach woman and Coach man,” he said. A lot of the ideas later become broader, more commercial ideas for Coach and can be put into handbags and outerwear.
Turning to international business, which generated $1.7 billion in sales in the last fiscal year (ended July 2), Luis said in Europe, consumers are really only discovering approachable luxury brands. The company has been focused on brand transformation with Vevers, which has allowed them to create a strong presence in the key European cities like London and Paris. It is opening a flagship in Milan by the end of the fiscal year. The brand was resonating with global tourists from Asia and the Middle East and is beginning to make inroads with local customers, he said. Last year, the company generated $135 million in European business.
“We think that on the overall planning horizon, we have a business at $500 million at retail,” Luis said.
In Asia, the most substantial opportunity is still in Mainland China, where the brand “is doing incredibly well and it continues to grow,” he added.
Coach’s target customer differs in each market. In the U.S., for example, the line is geared to a woman age 20 to 45, who is engaged in fashion and cares about how her handbag helps her express her sense of style. In China, the luxury customer is much younger. She tends to be more in the 20- to 35-year-old range. “Bestsellers are generally the same all over the world,” he said. Coach handbags retail from $300 to $800, with the bulk of the business at $300 to $500.
Another opportunity for the brand is the men’s business, which accounts for more than $700 million in sales. In the next three to five years, Luis anticipates it will become a $1 billion business. Men’s is offered under the Coach label, not Coach 1941. The company doesn’t plan to significantly expand its dedicated men’s-only Coach stores at this time. “Strategically, we have found that consumers are getting a better experience through a dual-gender expression.”
Luis touted the new Coach House that opens on Fifth Avenue this month as the best example of the new modern luxury format. The 20,000-square-foot store — the largest in the fleet — will sell all categories, offer new services and programs, and feature a Craftsmanship bar that will repair, monogram, size belts and perform other services. A custom-order station will let consumers customize their own Rogue bag in color and material of their choice. The company is also opening a Coach House in London on Regent Street.
Meanwhile, its coach.com web site is the biggest revenue generator for the Coach brand.
Looking ahead, Luis seeks synergies with the Weitzman acquisition, and in May, Giovanni Morelli will join Weitzman as creative director. He succeeds founder Stuart Weitzman, who is the creative director and executive chairman, and who will become chairman. Morelli will report to Wendy Kahn, ceo and brand president of Weitzman.
“There’s the opportunity for synergies for regular services that we can provide and share — legal, finance, IS, logistics, can be shared by brands on the back end,” Luis said.
He believes the shoe specialist can be an asset in helping Coach develop its own in-house footwear business, given Weitzman’s significant know-how. And Coach can assist Weitzman from the product development and manufacturing perspective in handbags and accessories. Weitzman’s handbags represent only 2 to 3 percent of the brand’s total sales. “Obviously there’s a significant opportunity for Stuart Weitzman handbags and accessories going forward,” Luis said. Last year, Weitzman generated $350 million in sales. The Weitzman team moved into Coach headquarters this month.
The decision to move into the new offices at Hudson Yards wasn’t made by Luis. “This existed prior to me as a concept and an investment,” said Luis, who noted that Coach this summer sold the office space and is leasing it from the new owners, a German insurance company, Allianz. “The number-one objective was to return cash to the company and increase our liquidity,” Luis said. Coach agreed to a $707 million sale-leaseback deal and simultaneously entered a 20-year lease for the space. Coach’s $707 million purchase price is net of $77 million due to Hudson Yards developers Related Cos. and Oxford Properties Group. Transaction costs totaled $26 million, resulting in a $30 million gain to be amortized over 20 years.
Asked about reports of a Coach-Burberry merger that surfaced earlier this year, Luis said, “We don’t comment on rumors and speculation.”
As the company enters the “third year of the third chapter, Luis noted that the company is in the midst of a five-year plan that was communicated in June 2014, and he said things were going well so far, citing “the progress that we’ve made and the amount of work that is still ahead of us.”
Luis is just the third ceo to run Coach throughout its 75-year history — and following Frankfort hasn’t always been easy.
“[It’s difficult] any time you step into someone’s shoes, who’s considered an icon,” he said, “but at the same time, I felt supported by Lou and that made it much easier for me. I also was coming from within the company, and that made it easier for me.”