Why Coach Became The "Worst" Luxury Brand This Year?

Below the Morgan Stanley Capital International Global Index 40%, Coach has become the worst performing luxury brand this year.

Luxury brand Coach is going through a bad time. Recently, Coach announced the first quarter fiscal year 2015 fiscal year: the continued weakness in the US led to a 19% year-on-year decline in overall sales and a 4% rise in global sales. Since the beginning of the year, Coach's share price has fallen by nearly 40%.

Coach performance It can not be attributed to industry problems. This year, Kering, the best performing luxury brand, synchronized with the Morgan Stanley Capital International MSCI World index, while the worst Coach was 40% lower than the index.

The North American market accounted for 70% of Coach's overall business, but Coach's North American same store sales fell 21% in the first quarter. As a luxury brand in the US, Coach has a strong store network in the US market. In 2011, Coach was the largest market share in the us with 32% market share. But in the past 3 years, Caoch has been challenged by Michael Kors and Kate Spade in the North American market, and is now lagging behind.

Why did Coach fail in the core market in just a few years?

The success of light luxury Coach is based on the brand positioning of "light luxury", which has been telling target users "I am a luxury, but not as expensive as an old luxury brand". It is this cost-effective strategy that has enabled Coach to grow at a high speed in the past decade or so, but this kind of brand positioning is a dangerous strategy. When the market environment is good, this positioning can make Coach grow rapidly. However, when the market environment is bad, Coach is easy to lose its way and grasp a bad balance.

Strategic error Coach the most important problem in the US market is the loss of balance and excessive reliance on discount stores. After the financial crisis in 2008, Coach sales dropped sharply, so Coach launched a discount store, and also launched two handbags with a price reduction of 30%. Since then, discount stores and low-priced products are increasing. Today, of the Coach retail stores in North America, 6 of the 10 are discount stores, while the average level of the industry is 1. The discount store has improved Coach performance in the short term, but it has not solved the real brand and product problems, but has diluted the brand value.

The product of Coach itself also has many problems. The difference between Coach and the old luxury goods has been that the products are faster and more fashionable. But last year, a survey showed that only 30% of the customers were interested in the Coach brand. For a luxury brand, if the product is not special enough, it will be useless even if the store and market develop more.

For Coach, the bad news is that its performance in North America will be even worse in the next few quarters. Victor Luis, chief executive of Coach, said the first quarter's performance was in line with expectations, mainly due to the strategic reduction of promotional activities in handbags business in North America. Coach has revealed to analysts that it plans to close 20% of all business stores in North America in the next few months. But the latest report shows that its North American market has increased by 1.

The good news is that Coach has been very aware of the problem and is making a big adjustment. Coach plans to gradually close shop outlets that dilute brand value, reduce discounts, and increase the supply of new products with higher pricing. It also updates the concept of stores and brand new marketing, hoping to regain some market share from Michael Kors and Kate Spade.

In addition to the famous designer Stuart Vevers, Coach is building a better department store and a flagship store that pays more attention to customer experience to make up for the loss. Victor Luis said Coach will unveil the first batch of modern luxury retail outlets in many important global locations such as Tokyo and New York.

However, for a luxury brand with value dilution, adjustment is hard to get instant results. Unlike other industries, luxury brands are usually hard to form strong brand influence in a short time. There will not be much time left for Coach. In the Chinese market where Coach is relatively dependent, the growth rate of the company has dropped to the slowest in two years: 20% in the previous quarter and 10% in the current quarter. Coach is obviously paying for the rapid growth of the past decade or so - lack of vision and courage to change at a time of rapid growth. Some changes must be made at the most appropriate time, and it will be very difficult to miss them. Business is like that.