What a difference a decade makes.
Building on 60 years of heritage, Coach blossomed into the global handbag and accessories powerhouse that it is today when it went public just over 10 years ago.
Purchased by Sara Lee Corp. in 1985, the leather house had its initial public offering and became a publicly traded company on the New York Stock Exchange under the symbol COH in October 2000.
Sara Lee — which at the time held a diversified portfolio of apparel, food, beverage, household and personal-care companies — sold 19.5 percent of its shares of Coach at the IPO.
In April 2001, Sara Lee completed a distribution of its remaining ownership in Coach via an exchange offer, which allowed Sara Lee stockholders to tender Sara Lee common stock for Coach common stock.
“Becoming a public company gave us greater control over our destiny and provided us with numerous benefits, which made us more competitive,” said Jerry Stritzke, Coach’s president and chief operating officer.
Once public, Coach took the reins by “streamlining” decision making, “incentivizing” its management team with compensation tied to the company’s financial performance and taking strategic direction from its “own” board, Stritzke explained.
These factors helped the company expand quickly. Right before the IPO, Coach’s sales totaled $538 million for the year ended July 2000. Just five years later, Coach’s sales jumped to $1.65 billion. In 2010, sales totaled $3.61 billion, giving Coach a 21 percent compounded annual growth rate over the 10-year period.
Coach’s robust growth had a lot to do with “broadening and modernizing” its merchandise, as well as moving from a vertically integrated model to a finished goods model through outsourcing its product.
The company also updated its stores and took direct control of its businesses when it bought out its distribution in Japan in 2002 and in China in 2009.
Additionally, the accessories and handbag maker has focused heavily on store expansion in the last decade, ramping up North American growth from about 250 stores in 2004 to about 500 stores in 2010. Now, it is setting its sights on Europe, Asia and South America.
“Globalization is a key growth initiative,” according to Stritzke. “We expect 50 percent of our growth over the next few years to come from international markets, though they only account for 30 percent of our business today.”
The company has also broadened its appeal with Poppy, a handbag and accessories brand geared to younger customers that launched in fall 2009. Last fall, it also launched Reed Krakoff, a lifestyle brand that includes ready-to-wear, shoes and jewelry designed by Coach president and creative director Reed Krakoff.
“Coach is a very different company from what it was before its IPO — the entire handbag industry has really evolved, and I think they’ve driven a lot of it,” said Needham & Co. specialty retail analyst Christine Chen, who explained that Coach played an instrumental role in “getting women to buy handbags as frequently as they buy shoes.”
The brand has been barreling through with strong growth. It was only during the recession that, like most upscale brands, it experienced a hiccup. Net income in 2009 fell 20.4 percent to $623.4 million, while sales rose just 1.6 percent to $3.23 billion.
“Coach remained full price throughout the recession — that hurt them, but I think it was the right decision,” Chen said, explaining that when Saks was marking down other bags 70 to 80 percent, it was too hard for the brand to compete.
As a result, Coach has since lowered its prices by broadening its mix and offering about half of its bags for less than $300 — a strategy that has paid dividends, according to Robert Drbul, an analyst at Barclays Capital.
“Today’s consumer is buying less with debt, and is more resilient to changes in the macro environment,” he said, noting that Coach’s higher-end consumer has recently come back to life, snapping up merchandise priced above $400.
“Leather handbags are seeing strong momentum,” Drbul said, “and the consumer appears to be willing to pay a higher price for these products.”