SEVERAL MAJOR FIRMS REPORTEDLY EXPLORING A PROPOSAL FOR COACH

Byline: Wendy Hessen / With contributions from Katherine Weisman, Paris

NEW YORK — A number of major companies are said to be looking at Coach.
As reported, an unnamed investment firm has begun circulating a prospectus on the big leather goods firm to potential buyers. Officials at Sara Lee Corp., the parent of Coach, have declined to comment or even confirm that Coach is up for sale.
Sara Lee has already said, however, that it plans to sell off some of its assets, especially those in the personal products unit.
Among those said to have expressed interest in Coach are such apparel and accessories industry powerhouses as Nine West and Liz Claiborne, as well as global behemoths Dickson Concepts and LVMH Moet Hennessy Louis Vuitton.
But an initial price tag reported at roughly $900 million could stall any deal, sources noted. Still, the question of who might be willing to go that high has ignited a lot of conversation.
Some sources in the luxury goods world have expressed doubts about the level of interest such high-end firms might have in Coach.
“It’s not really a luxury brand, and the distribution is American rather than global,” said one European source.
“Coach shares more customers with the likes of Dooney & Bourke and Liz Claiborne than it does with the more upscale and designer brands it has been aspiring to. It’s not as hip as it needs to be to attract the younger customer,” noted another source. “It’s questionable whether it has the same level of American cachet that brands like Polo Ralph Lauren or Levi’s have with Europeans, especially when you consider the choice of homegrown leather brands consumers have at their disposal.”
Yet one luxury goods executive speculated that LVMH chairman Bernard Arnault could be interested in the company for several reasons, even if the brand would bring LVMH into lower price points.
For one, Coach is a vertical company with manufacturing know-how and a network of wholly owned stores, similar to LVMH’s Louis Vuitton. Arnault could be looking not only at the Coach merchandise, but also at the locations of the stores, which are bigger than most Vuitton stores. And once Marc Jacobs’s ready-to-wear for Vuitton rolls out over the next several seasons, Vuitton will need larger locations to house the line’s apparel and accessories.
The Coach stores could also be attractive to Arnault, given his increased interest in distribution, as witnessed by the recently purchased Sephora fragrance chain in France and the stake acquired in the Douglas International fragrance chain.
A spokesman for LVMH said the company had no comment regarding Coach. Hong Kong-based Dickson Concepts executives could not be reached. Spokeswomen for both Liz Claiborne and Nine West also said their respective companies declined to comment.
Lew Frankfort, chairman and chief executive officer of Coach, declined to comment on the potential sale of the company, saying, “We don’t comment on rumors and speculation.”
But as for Coach’s global power, Frankfort was unequivocal.
“We are the American leather house — the only one that can sit at the same table as the European leather houses,” he said.
And despite the readiness with which some Europeans put down Coach’s status, it is a powerful brand in the U.S., with a major presence in department stores and over 120 Coach stores. In addition, it has had a longtime presence in Japan through a distribution deal with Mitsukoshi. Volume there is reportedly around $100 million. It is also expanding its reach into Southeast Asia through a recent deal with Dickson Concepts.
In August, Dickson entered into a large retail distribution agreement with Coach. Starting in September, Dickson set in motion a plan to open 16 Coach retail stores over a three-year period in Hong Kong, Taiwan and Singapore. In addition, the firm assumed operation of the 13 existing Coach retail stores in those regions and in Indonesia.
Dickson Concepts also plans to launch Coach in China and explore opportunities for further expansion of the accessories brand in Malaysia and Thailand.
Industry sources confessed to a bit of sticker shock regarding the purported asking price of $900 million for Coach, with several saying it was about $200 million higher than expected.
“It’s a lot of money for a very mature business,” said a source.
Coach’s sales last year are said to be $586 million, a figure that Frankfort didn’t outright disagree with, saying only, “In the fiscal year ended June 30, Coach’s sales were north of $500 million.”
He declined to specify how far north.
Regardless of speculation about the maturity of Coach’s core leather goods line, Frankfort was emphatic about the level of ongoing interest for additional products bearing the Coach name.
He said plans to launch the first collection of Coach watches, licensed through the Movado Group, are “moving forward rapidly,” and on schedule to hit stores in March.
In addition, Frankfort said, the company continues to pursue new ventures.
“We’re actively discussing the development of a flagship store in the SoHo area, which we hope could be opened as early as fall of 1998,” he said. “This would represent a larger footprint — in the neighborhood of 4,000 square feet — than any other [Coach] stores in the New York area and would carry the full assortment of both men’s and women’s Coach products.
“Our equities have never been stronger. We’re also in final discussions for a potential leather furniture licensee, which we hope to complete and announce in the next few months.”
As for weak spots, some industry sources say Coach has recently begun to lose its hold on the Japanese customer, who is now more interested in buying hotter and hipper collections such as Prada, Gucci and Ferragamo.
Frankfort disagreed, saying, “We continue to enjoy considerable strength from the Japanese consumer, both here in the U.S. as well as in Asia. We are continuing to grow our business by opening more locations there and through our agreement with Dickson Concepts.
“Moreover, we’re in the midst of a major reimaging of our stores in Japan, and adding much stronger fashion direction at Coach so that we can continue to effectively compete against the Pradas and Guccis of the world.
“We’ve just completed our second successful season with car maker Lexus here and will soon launch a Coach Avalon model with Toyota in Japan.”

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