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Coach's Loss Could Be Coach's Gain

By Andrew Marder - Apr 24, 2013 at 6:00PM

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Reed Krakoff may not be a household name, but his designs have been making headlines for years.

Next year, Coach (TPR 1.42%) is going to be operating without one of its longtime designers, Reed Krakoff. The creative director is leaving after his current contract expires in 2014 to focus on his self-titled brand. Krakoff has been with Coach for 16 years, and his designs have helped move the company from one of the many to one of the few.

Krakoff started his own line in 2010, and the label's success has been phenomenal. That's put a strain on his time, and led to his decision to leave Coach, according to The New York Times. The change might be a blessing in disguise, as Coach is well set to move forward into a new era of design, and could benefit from some new blood at the top.

16 years of success
I don't want to come across as thinking it's time for Krakoff to go; it's just that he's been there a long time -- even the best presidents have term limits. Over the last 16 years, Krakoff has been the architect of Coach's design revival. While the brand has been around since the 1940s, Coach went through a weak phase in the 1990s. Krakoff took the lackluster brand and turned it into a style icon.

During the last 10 years, his vision and the leadership of CEO Lew Frankfort -- who is also stepping down next year  -- have given investors a healthy return. But the emergence of new brands, notably Michael Kors (CPRI -2.27%), has upped the stakes at Coach. A fresh batch of leaders and designers could help the company keep its place in the limelight.

The new normal
In its earnings release this week, Coach once again gave investors a glimpse of the two things it's consistently done right, and the one thing that it continues to struggle with. On the plus side, Coach has made its international business and its men's line absolute stars. Sales in China increased 40% last quarter, with double-digit comparable sales growth. Meanwhile, the men's line is on track to grow by 50% from last year, up to $600 million in revenue. 

But Coach is hampered by its North American comparable-store sales growth. Last quarter, it came in at an anemic 1%. Meanwhile, Kors is storming the fashion scene with a 41% growth in comparable sales. Even though the current deck seems stacked in Kors' favor, this coming fall may be Coach's first chance to start fresh.

Kors has received mixed reviews of its fall line, and Coach is going to launch its first clothing line in October. The company -- in a bid to have the highest management turnover rate in the industry -- brought in design director Sandra Hill to help it compete on a broader stage.

If Coach can get its first clothing line right, then it could be on the road to a great few years with new leadership and a strong back catalog of customer favorites. While Kors is sitting pretty atop the heap right now, I wouldn't be surprised to see fortunes change by the end of 2013. Regardless, it'll be interesting to watch.

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