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Avenue. By the time Frankfort stepped down, there were more
than 900 Coach stores in North America, Asia, and Europe, with
hundreds of Coach boutiques in department stores throughout
those same markets as well as in Latin America, the Middle East,
and Australia. In addition to the brick-and-mortar outlets, Coach
had developed a healthy stream of online sales through its Web
sites.
High Price Equals High Sales
With the expansion in Coach’s product lines and distribution out-
lets, women everywhere were drawn to the brand’s quality and
style. But perhaps more than anything, they were attracted to the
brand as a symbol of luxury, taste, and success. Over the years,
Coach had taken great care to find an optimal price point, well
above that of ordinary department store brands. Whereas stores
that carried Coach products also sold mid-tier handbag brands
for moderate prices, Coach bags were priced as much as five
times higher.
It might seem that such a high price would scare buyers off.
To the contrary. As Coach’s reputation grew, women aspired
to own its products. And although the price of a Coach bag is
an extravagance for most buyers, it is still within reach for even
middle-class women who want to splurge once in a while. And
with comparable bags from Gucci, Fendi, or Prada priced five to
ten times higher, a Coach bag is a relative bargain.
With its image as an accessible status symbol, Coach was
one of the few luxury brands that maintained steady growth and
profits throughout the Great Recession. And it did so without
discounting its prices. Fearing that price cuts would damage
the brand’s image, Coach instead introduced its “Poppy” line at
prices about 30 percent lower than regular Coach bags. Coach
concentrated on its factory stores in outlet malls. And it main-
tained an emphasis on quality to drive perceptions of value. As a
result, Coach’s devoted customer base remained loyal through-
out the tough times.
At about the same time, Coach also invested in new cus-
tomers. It opened its first men’s-only store, stocked with small
leather goods, travel accessories, footwear, jewelry, and swim-
suits. Coach also expanded men’s collections in other stores. As
a result, its revenue from men’s products doubled in one year.
The company saw similar success with international customers,
pressing hard into Europe, China, and other Asian markets.
But just as it seemed that Coach was untouchable, the brand
showed signs of frailty. Coach’s U.S. handbag business started
slowing down. During Luis’s first year on the job, Coach’s share of designs from the new regime.
the U.S. handbag market fell from 19 percent to 17.5 percent—
the second straight year for such a loss. During that same period,
Michael Kors, Coach’s biggest competitive threat, saw its market
share increase from 4.5 percent to 7 percent. Up-and-comers
Kate Spade and Tory Burch also saw increases. Because the
U.S. market accounted for such a large portion of the company’s
business, overall revenue took a dip despite the brand’s growth
in new markets.
What’s the Problem?
Many factors could be blamed. During the most recent holiday
season, Coach had to contend with the same problem many
other retailers faced—less traffic in shopping malls. But Kate
Spade and Michael Kors, which operate their own stores and sell
through department stores in malls just as Coach does, experi-
enced double-digit gains during the same period. Coach’s per-
formance also ran counter to the dynamics of the handbag and
|CHAPTER 11 Pricing Strategies: Additional Considerations 371
accessory market as a whole, which grew by nearly 10 percent
over the previous year.
The difference in sales trends between Coach and its com-
petitors have led some analysts to speculate that the long-time
leader has lost its eye for fashion. “These guys are definitely los-
ing share,” said analyst Brian Yarbrough. “Fashionwise, they’re
missing the beat.” Yarbrough isn’t alone. Many others assert that,
under the same creative direction for 17 years, Coach’s designs
have grown stale.
Then there is the issue of Coach’s price structure—in short,
Coach may have taken the premium price point too far. “Coach
tried to eliminate coupon promotions tied directly to its discount
outlets, which are the company’s biggest source of revenue,
and which attract customers looking to stretch their dollars,”
said one luxury retail expert. “The number of people willing and
able to pay a premium for luxury brands, like Coach, is getting
small as this weak economy continues.” However, price alone
would not explain why Coach’s business slid at the same time
that sales by comparably priced competitors rose. Additionally,
while Coach’s North American revenues were down last year,
sales of its high-end handbags (priced above $400) actually
increased.
Some analysts have also questioned the effect of Coach’s
popularity on its image of exclusivity. A luxury brand’s image and
customer aspirations often rest on the fact that not everyone can
afford it. But Coach has become so accessible, anyone that wants
a Coach product can usually find a way to buy one. This availabil-
ity has been fostered by Coach’s outlet stores—company-owned
stores that carry prior season merchandise, seconds, and lower-
quality lines at much lower prices. With the number of customers
drawn in by low prices, Coach’s outlet stores now account for
a sizable 60 percent of revenues and an even higher percent-
age of unit sales. Combine that with a healthy secondary market
through eBay and other Web sites, and Coach products are no
longer as exclusive as they once were.
Although new as CEO, Luis has been with Coach for the past
eight years and oversaw Coach’s international expansion. And
although Frankfort has stepped down, he is still involved as chair-
man of the board. Led by these seasoned fashion executives,
Coach has a turnaround plan. For starters, the company has
hired a new creative director who, according to Luis, is “provid-
ing a fashion relevance for the brand like we have never had.”
Both the fashion and investment worlds anxiously await the first
In addition to the creative and design changes, Coach is re-
balancing its product portfolio. To win back shoppers, Coach
will be positioned as a lifestyle brand with greater expansion into
footwear, clothing, and accessories. Additionally, the company
will increase the number of handbag offerings priced at $400 or
more, a move that could raise the average price point of Coach’s
handbags. With all that the brand has at stake, those in charge
will not give up easily. The question is, will the new strategy re-
store Coach to its former glory days?
Questions for Discussion
11-18 What challenges does Coach face relative to pricing its
vast product line?
11-19 Based on principles from the chapter, explain how price
affects customer perceptions of the Coach brand.
11-20 How has increased competition at Coach’s price points
affected the brand’s performance?