A fast-growing middle class in China, a consumer base in Europe that is finally catching on to “accessible luxury” brands and an ever-evolving digital landscape are just three of the reasons Coach Inc. chief executive officer Victor Luis is upbeat about the prospects for his company.
During a wide-ranging conversation with WWD editor in chief Edward Nardoza, Luis, who became Coach’s ceo in 2014 after running the company’s international operations, was candid about the challenges the iconic American accessories company and the rest of the retail industry are facing. Terrorism, currency fluctuations and the slowdown of the Chinese economy are all valid concerns but should be taken in stride, he said. The longer-term market prospects for an affordable luxury player like Coach are still very bright, he concluded.
“Anyone who’s been in this industry for 20 to 25 years, as I have, has seen various shocks over the course of the development of luxury retail in general. Whether there was SARS in the early period, of course [the financial crisis of 2008] and there will be future shocks and future ups and downs,” he said.
For the third quarter ended March 26, Coach reported a 27.7 percent increase in net income to $112.5 million. Net sales rose 11.2 percent to $1.03 billion from $929.3 million. The period reflects the company’s first quarterly growth in three years for top-line, operating income and earnings per share. Under Luis, the company is embarking on a major cost-cutting drive. In April, Coach revealed plans to cut 300 jobs.
Just the day before the WWD Global Fashion Forum, China released its third-quarter gross domestic product figures, showing 6.7 percent growth. While that number is still much higher than that of many other developed countries it represents a slowdown from the growth China has clocked in previous years. Luis remains bullish about his prospects for the country.
“GDP driven by consumption does not make me nervous,” he said, referencing the country’s economic shift away from manufacturing. “It makes us happy.”
Luis said China offers a compelling mix of a fast-growing middle class, rapidly expanding cities and world-class infrastructure. Recent government policies aimed at boosting consumption at home are also promising for brands like Coach, he said.
“We have a lot of optimism about China,” he said, adding that Coach’s purchase of footwear brand Stuart Weitzman gives the company another reason to be upbeat on China.
“It’s doing incredibly well in mainland China, which is one of the reasons we made that acquisition because we could see how it was growing in relevance internationally,” he said of Weitzman.
As for other markets, Luis said Macau is starting to improve “sequentially” after a tremendous amount of volatility over the last three to four years. He also noted the transformative power of Chinese tourists on the retail scene in Southeast Asia and Japan over the past few years.
“People were looking to sell their [Tokyo] Ginza properties. Now people are looking back to buy and get into Ginza,” he said.
He also noted the strength of Coach’s business in Europe, a place where consumers are finally seeing the value of accessibly priced luxury brands. The company bought back its business there from a partner three years ago. At that time the brand did sales of about $30 million in the region but they came in at $135 million for the last fiscal year, he said, adding that sales continue to grow at a double-digit pace.
Looking further afield, Luis said it is far from certain that India or South American economies will ever grow at rates comparable to China.
“Two or three years ago, there was a lot of attention on Brazil. There was a lot of attention on India. And I think now what we’re seeing is that the next geography, beyond China, from a growth perspective is not necessarily so evident,” he said.
Digital also plays a big role in Coach’s future expansion efforts, especially in China. Last month, the brand decided to shutter its store on Alibaba’s Tmall in favor of selling through its own e-commerce site and social media platform WeChat, which has an embedded electronic payment system.
“We experimented with Tmall, following one or two other luxury brands that experimented [on the platform]. We learned a lot, [but] we felt it was better to just focus on our own web site and where we could control the assortment, manage better and have a much more direct relationship with the consumer,” he said.
Coach has been an early adapter to social media in China, first on Sina Weibo and then on WeChat, Luis said.
“[WeChat] has been a terrific platform for us and who knows, there’s probably one or two more on the horizon that are not yet born that we will join as well,” he said. “We like to be on the forefront of what is new.”