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1 Way Coach and Gucci Have the Fashion Industry Beat

By Steve Symington - Jan 4, 2015 at 8:49AM

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In the world of fashionable e-commerce, these two luxury titans are tops.

Founded in 1941 and 1921, respectively, Coach (TPR -3.25%) and Gucci have been around for longer than many people can remember. But that doesn't mean they don't know a thing or two about making the most of today's cutting-edge technology.

In fact, according to a recent study performed by digital business intelligence researcher L2, these two luxury stalwarts do so more effectively than anyone else in the industry.

Specifically, Coach and Kering SA-owned Gucci tied for the No. 1 rank in L2's 2014 Fashion Digital IQ Index, an annual study to gauge the "digital competence" of 90 top fashion brands. Coach and Gucci also notably ousted three-time defending champ Burberry, which fell to sixth in this year's list behind No. 3 Tory Burch, No. 4 Ralph Lauren, and No. 5 Kate Spade. All 90 companies were ranked based on a combination of their website, mobile, and e-commerce capabilities, as well as digital marketing and social media efforts. 

Why is this important? For one, L2 states that while only 5% of luxury sales are completed on the Internet, almost 50% of total sales begin there through consumer research or online marketing exposure.

Here's what made Coach and Gucci stand out
Gucci, for one, greatly benefited as an early adopter of new digital advertising formats like Flipboard, a novel social news aggregation platform. Gucci also offers a deep selection of merchandise both online and in store. This is a testament to Gucci's efforts to ensure a consistent experience for guests, regardless of whether they're perusing the website or strolling through a retail outlet.

And this isn't Gucci's first digital awards rodeo. As Bloomberg pointed out, Gucci also took the top spot earlier this year in a study on luxury e-commerce performed by Exane BNP Paribas and Contactlab.

Coach excels as one of few companies making investments in total supply chain integration.

Meanwhile, though many fashion brands featured at least one website element that interfaces with local inventory systems, L2 noted that Coach was one of only two brands (Stella McCartney the other) to "demonstrate investment in total supply chain integration -- allowing visitors to successfully reserve or pick up items immediately at nearby locations."

By contrast, nearly all other fashion brands that  advertise "click-and-collect" services merely ship product from distribution centers rather than utilizing existing store inventory to meet demand. This is one area where Burberry fell short this year, for example, by requiring a delay of 24 hours for its in-store pickup service. And make no mistake: In the world of luxury goods, the prospect of instant gratification can make or break a sale.

"Despite some of the struggles they've had with their business," said L2 head of research and advisory Maureen Mullen, "Coach is probably one of the strongest multi-channel retailers out there."

Coach has suffered of late in its core North American market, where sales last quarter fell 19% year-over-year to $634 million. Meanwhile, Coach has lost market share to fast-growing competitors like Michael Kors, which grew North American revenue last quarter by 29.8% to $802.2 million. For the record, Michael Kors ranked ninth in L2's study.

But at the same time, Coach's online strength isn't all that surprising when you consider it only just began a costly multi-year transformation to turn the business around through a combination of updating its global store fleet, realigning inventory levels, closing around 70 underperforming locations, and implementing other organizational efficiencies. That transformation is expected to result in total pre-tax charges of $180 million to $220 million through the end of fiscal 2015, of which $37 million was recorded in its most recent quarter -- and it seems safe to bet some of that money went toward implementing the various digital initiatives for which Coach is being recognized now.

In any case, L2 summed it up well in saying these kinds of digital investments by both Gucci and Coach "has positioned both for future growth, even though the effect is still to be felt in terms of rising revenue."

For now, then, fashion-conscious investors in both Coach and Gucci will need to hurry up and wait for the positive effects of their digital know-how to materialize. But when it does, I suspect patient shareholders will be happy they held on.

Steve Symington owns shares of Coach. The Motley Fool recommends Apple, Burberry, and Coach and owns shares of Apple and Coach. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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Tapestry, Inc. Stock Quote
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Kate Spade & Company Stock Quote
Kate Spade & Company
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Ralph Lauren Corporation
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