Happier Shoppers Won't Solve Coach's Problems

Yesterday's announced rise in U.S. retail sales is welcome news to companies like Gap and Coach, but it's not enough to get them out of trouble.

Apr 15, 2014 at 5:15PM

According to the Commerce Department, retail sales grew by 1.1% in March, and in February, they grew by 0.7%, more than initially proposed. According to my wife, I shouldn't eat that cheese -- it's gone bad. Getting back to retail sales, the March result was slightly higher than analysts had predicted, leading to an odd sort of euphoria among observers. One economist said, "The consumer came in like a lamb and went out roaring like a lion." Maybe a little strong.

While the highest of hopes may not yet have come true, what's undeniable is that the trend is looking better across the whole retail sector. After a winter of weak sales and depressed margins, reports are now showing an increase in confidence and spending across the U.S.

All signs point to maybe
In addition to the March sales report, the newest consumer confidence report also showed an improvement in expectations. Consumers are reportedly looking forward to a better tomorrow, although they still believe that incomes are going to remain slow to grow.

Income growth has been the sticking point for many retail brands, with customers holding on to their spare cash in the expectation that no excess is going to be coming their way in the near future. That's had implications across the spectrum. For instance, Gap (NYSE:GPS) and teen retailers in general have been hit when back-to-school and Christmas roll around, cutting prices to entice parents into spending their hard-earned cash.

On the higher end, businesses like Coach (NYSE:COH) are failing to bring in new customers as their brands show wear and tear. Instead, only the hottest aspirational brands are able to pull in big groups of new shoppers. During its last conference call, Coach pointed to the drop in foot traffic as one of the biggest contributors to its weak numbers -- North American comparable sales fell 9%.

Economics alone won't save the world
In the interest of full disclosure, maybe economics alone would save the world -- I'm not sure. What I do know for sure is that Gap and Coach can't just wait it out. Both brands need to keep their image sharp if they want to compete. Gap has been losing ground to trendier retailers like Urban Outfitters' Anthropologie brand.

Gap's comparable sales fell 6% in March, highlighting the brand's current problems. What Gap needs is a little shine on its shoes. The company is still riding relatively high, having reworked its entire business over the last year and a half. It now needs to find a way to keep the ball rolling. For its part, Gap is optimistic about the rest of the year, and even with its shortfall, it felt comfortable reaffirming its full-year earnings-per-share guidance.

Coach is in a tighter spot, with a longer and deeper slump. Branding has been a real problem lately, with Coach unable to sell its main message. Instead, it's been focusing on international expansion and its men's line. Those have done well, with men's sales increasing by close to 20% last quarter. But it's left Coach's core customers feeling left out, and they've moved on to brands that are focusing on them instead.

The bottom line
A positive turn in our perception of the economic condition is good news, generally. For Gap, it's probably going to help bring the business back to level, as the company has a strong enough brand and a dedicated enough fan base. For Coach, it's still good news, but there's more work required to make the turn from bad to good. While Gap can fall back on the brand strength that it developed recently, Coach needs to stop the brand-bleeding before it sees a big bump from any general economic turn for the good.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers