Schulman, whose move to Coach was first reported by WWD.com on Thursday, has a long luxe resume with stints at Jimmy Choo, Yves Saint Laurent and Gucci before five years atop Neiman Marcus’ international and Bergdorf’s businesses. The well-respected executive, who will serve as president and chief executive officer of the Coach brand starting June 5, is broadly seen as a strong choice to continue to elevate and grow that business. Coach is already skewing higher under executive creative director Stuart Vevers.
Having a steady hand at the $4.2 billion brand (and a positive trajectory), frees Luis to take a broader view of the business landscape. Since taking the reins as ceo of Coach in January 2014, Luis has been positioning the company to be something more than the accessible luxury handbag company he inherited.
Coach called Schulman’s hiring an important part of its “evolution as a customer-focused, multibrand organization.”
Luis has been open about wanting to turn the group into a “house of brands.” Stuart Weitzman was acquired in a $530 million deal in 2015 and last year contributed $33 million in operating income and $345 million in sales to the business.
Now Coach is believed to be the last bidder standing in a drawn-out auction to buy Kate Spade & Co. The process was thrown into some doubt this week as the auction was said to be extended to give the two parties more time to negotiate. Wall Street took that as a bad sign and sent Kate Spade’s shares down sharply, which in turn might actually make a deal more palatable to Coach.
Shares of Coach rose 1.8 percent to $40.04 Thursday, as Kate Spade’s stock inched back up 1.3 percent to $19.73. That brings Kate Spade’s enterprise value to $2.5 billion, low enough to make a deal that’s not quite at $3 billion — the amount Kate Spade was said to be seeking — look more doable.
With Coach taken care of management-wise and Kate Spade in the wings, Luis is very close to having the core of a portfolio to build off of, following the likes of other successful brand groups, from VF Corp. to LVMH Moët Hennessy Louis Vuitton and Kering.
“Josh is a proven lifestyle and brand builder having worked for Gucci and also having done a great job at Jimmy Choo and he’s got the touch of Bergdorf Goodman after five years,” said Mortimer Singer, ceo of Marvin Traub Associates. “Adding that sensibility and point of view is a continuation of what Coach has set out to do already. If they try to go higher with Coach and have Kate come in, effectively they can have their cake and eat it a little bit too.”
Big portfolio companies in the U.S. have a mixed record. Liz Claiborne Inc. (which was eventually boiled down to just Kate Spade), Jones Apparel Group and Kellwood Co. all fell by the wayside, in part because having a common platform on the back end led to brands that started to look and feel too similar as costs were cut.
But Singer noted Coach would be a portfolio company rooted in accessories.
“All the big luxury conglomerates that are successful are accessories-led, so to mimic that in this way, I think it’s very sound thinking,” he said.
Luis told Wall Street in January that “handbags and accessories, footwear and outerwear especially” would be areas where the company would “obviously” consider deals. “We see Coach Inc. being larger than just the Coach brand,” he said.
He noted that he was pleased with Weitzman’s results and said that brand could move beyond footwear into handbags and other accessories in the years ahead.
“We’re very interested in brands that are great brands and that growth potential where we can leverage our skill set, our structure, our systems, our infrastructure supply chain and the know-how that we have in helping great brands develop globally,” Luis said.
David Silverman, a senior director at debt watchdog Fitch Ratings, said Luis’ moves at Coach have generally shown a prudent and methodical approach.
“It’s been a multiyear process of reducing promotions and flash sale sites, while at the same time rolling out the modern luxury remodel and only doing so as they generate positive returns and customer reactions to the brand,” Silverman said.
That calculating ethos would seem to extend to the ceo’s acquisition strategy as well.
John B. Morris, senior retail analyst at BMO Capital Markets, said it was still early to talk about the potential scope of the Coach portfolio.
“This is going to be a story that plays out over a long time,” he said.
“We’re impressed with what Coach has been able to do to turn around the core Coach brand, shifting to a younger, more energetic market age-wise and emerging with a reenergized brand, which is no small task; it’s taking on a fair amount of risk,” he said.
But that doesn’t mean the brand doesn’t face its own challenges, including a generally tough retail market and the rapid shift in consumer preferences as the Millennials come of age.
“But don’t lose sight of the other elements, like the significant amount of business that is still being done in the [discount stores,” the analyst said, pointing to Coach’s significant outlet business. “The question still outstanding is how much of this discount brand halos over the full-price [offering].”
With Schulman on board to deal with those challenges, Luis can take more time to scan the horizon and further plot the expansion of his empire.
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