Watch out Michael Kors, Coach Is Plotting Its Comeback

Coach announces its latest game plan for turning around its sales and stealing back customers from Michael Kors.

Jun 6, 2014 at 4:30PM

Coach (NYSE:COH), the global fashion brand famous for its women's handbags and accessories, has seen better days. The brand, which was started in New York City in 1941 and once seen as unstoppable in the fashion world, has been facing increasing competition -- in particular, from fashion designer Michael Kors (NYSE:KORS). The battle has been becoming increasingly heated, and the results have not been good for Coach's sales. Despite all of its troubles, Coach is still standing and appears to be taking the first steps toward mounting a turnaround.

First steps
In April, Coach announced that it had engaged world-famous designer William Sofield and his team at "Studio Sofield" to consult on a complete redesign of Coach's flagship stores in Beverly Hills, California and New York City. In addition, the company will make the renovations alongside the opening of a new, huge, 8,700 square-foot store in Tokyo, Japan. Once the company implements the new store concept at these three locations, it will carry the redesign to other store locations in 2015. The man at Coach heading up the project and working with William Sofield is Stuart Vevers, who is the acting Executive Creative Director of Coach, and had this to say in a corporate press release:


William and I share a genuine desire to create something different -- different for Coach and unique in luxury. He has created some of my favorite stores...As we continue on the path of transformation, I want our new store environment to organically trigger a significant change in the perception of our brand. A space that feels authentic to Coach, confident, modern and inviting, with honest construction and rich, warm materials. 

Clearly, Coach is excited about the project. Furthermore, it might just be the spark that Coach needs to lure back customers who had shifted their focus toward Michael Kors.

Mr. Sofield echoed Stuart Vevers's statements by adding:

Coach's legacy finds dignity in the honest simplicity of form...It's grown alongside the city into an emblem of the sophisticated, yet playful refinement that embodies an authentic and timeless New York style. The concept that Stuart and I have devised instills notions of raw materiality and hand craftsmanship that converse (juxtaposed) with the balance and expression of structure. It will have an elegant thoughtfulness that is classic, but buoyant with a lightness of spirit.

Coach must do something to turn around its fortunes, and this might be the beginning of just that. If Coach doesn't do something to turn its fortunes around, its days may be numbered.

The necessity of these redesigns
To put it simply, the redesigns are extremely necessary. Investors once loyal to the Coach brands' ability to deliver returns have begun to question whether the company has lost its edge. Their fears may very well be warranted as the company has been losing customers to the likes of Michael Kors left and right.

Annual net sales

Company Name

FY 2013

FY 2012

FY 2011

Coach

$5.08 billion

$4.8 billion

$4.158 billion

Michael Kors

$3.2 billion

$$2.1 billion

$1.2 billion

Just a few years ago, Michael Kors was a fraction of the size of Coach. However, as it has grown by leaps and bounds in more recent years, it has begun moving in on Coach's territory and stealing customers. This problem became more apparent in Coach's latest quarter which ended March 29, 2014.

Quarter ended:

Divisions

March 29, 2014

March 30, 2013

North America

$647.9 million

$792.5 million

International

$440.6 million

$385.2 million

North American Comparable Store Sales

-21.4%

-13.6%

Clearly, this trend of Coach losing sales to the competition, particularly in the all-important North American market, is getting worse and possibly accelerating. Coach needs to do something soon to make sure the damage is not permanent, and that is why this remodeling of the company's flagship stores is so crucial.

Foolish takeaway
While this news is a step in the right direction, it is also important to note that Coach will also need to focus on what customers want -- its products. Regardless of the company's history, the fact of the matter is that consumers view Michael Kors' products as more trendy and fashionable. Coach needs to address this line of thinking; otherwise, these recent sales decreases at Coach are just the beginning of the end. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. 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.

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