default-output-block.skip-main
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

Victor Luis on Transforming Coach in Turbulent Times

BoF's Imran Amed talks to Coach CEO Victor Luis about the company's return to growth amidst wider market uncertainty.
Coach CEO Victor Luis | Source: Courtesy
By
  • Imran Amed

NEW YORK, United States — The world is more globalised and interconnected than ever before. But this connected world is also increasingly unstable and uncertain, what with terrorist attacks, mass shootings, and political crises unfolding all around the world — from the United States to Turkey, and Great Britain to Brazil.

But nowhere is this more apparent at the moment than in Europe. In recent months, the continent has been rocked by a series of terrorist attacks, which, along with terrible loss of human life, have contributed to pervasive sense of uncertainty which has been eroding consumer confidence and plaguing global markets.

That Coach CEO Victor Luis has overseen a gradual turnaround of the business amidst this kind of global turbulence is a testament to the strength of his management skills. Indeed, in April of this year, Coach announced that third quarter sales, profit and earnings had all returned to growth for the first time in years, with double-digit growth in Europe and mainland China.

Last month, BoF's Imran Amed sat down with Mr Luis at our local VOICES gathering in New York City to learn more.

BoF's Imran Amed talks to Coach CEO Victor Luis about the company's return to growth amidst wider market uncertainty at the VOICES New York event supported by QIC Global Real Estate in June 2016.

Imran Amed: When you took over the reins of the business in 2014, what was the state of the Coach business at that point and what did you see as the key challenges for the business?

Victor Luis: I think that when we look at the Coach brand you can think of three chapters: our first chapter basically from our founding in 1941 – this year we celebrate our 75th anniversary – through maybe the late ‘90s or early 2000s, where Coach grew to about a $500 million dollar business. And we look at a brand that was, in essence, born as America’s original house of leather. We sold a few SKUs of unlined leather bags mostly made here in New York City.

Then, we enter a period where — with my predecessor and a new creative director coming together in the early 2000s — we made the brand a bit more fashionable. We called it the era of the three Fs. We added some fashion, fun and femininity to the brand. We diversified; we moved beyond just this idea of unlined leather bags; we added fabric and other materials, we added a few licenses with fragrances, scarves came into the portfolio; and sunwear. We saw our business grow dramatically from [around] $500 million to $4.5 to $5 billion. We were the darling of Wall Street [because of] the publicly traded accessible luxury sector that we helped to create here in the US.

During that period, we were probably not aware enough of the changing context around us, with increasing competition. Other players came in and played on their fashion strengths, so seasonally they changed. They looked fresher and more modern; they copied our white storefront; they copied our feature table presentation inside and [so on]. A lot of it was the same and they may have added their own architectural details – a different rug or a different window — but, in essence, what you had was an increasing amount of competition giving consumers a lot more choice. By the nature of the fact that we probably didn’t evolve as quickly as we should have, you end up looking old and looking like you’re of yesterday and not of today.

We decided it was time for dramatic change, and the key decision was to find the creative vision for the next chapter, the third chapter of Coach. We’re now calling that “Modern Luxury,” which is for us to evolve and be our authentic selves, rediscovering our history and heritage of craftsmanship as America’s original house of leather, as well as evolving more authentically as a fashion brand.

That requires a creative vision. We were lucky enough to find Stuart Vevers, who had the experience of having worked with traditional leather houses and understood craft, material, and design in our core category. But his previous experience had also helped brands transform themselves into broader lifestyle brands.

We’ve moved [from being a] North American business to a global [one that’s] continuing to see attraction in Asia, especially with our Chinese consumers and more recently in Japan. [We’re now] seeing double-digit growth as well in Europe [since] we’re in the very early stages of our development there. We have a business in China that this year will be $600 million, and in Europe that will be about $125 million.

IA: But since you’ve been expanding globally over the past decade or so, a business that was very well known in its home market now has to face new challenges and build relationships with global consumers. And that new global context is unprecedented in terms of the change that is happening all at once. How have you managed to do so in a way that you’re now actually performing better than most brands in the luxury industry?

VL: I’ve been in this business since 1991. I started my career in Japan, which is probably one of the oldest and certainly the most mature of the luxury markets. We’ve seen [the yen to dollar] exchange rates go from 120-130 to 79 and back and forth many, many times. We’ve lived through SARS and other geopolitical issues and crises.

I think that what is always true is that you can manage some of the operational details. In our case, as an American publicly traded company, you can hedge currency, diversify your supply chain and take a lot of operational steps to help you deal more effectively through short-term impacts, whether they be geopolitical terrorism, tourist flows, currency or the like. But at the end of the day, successful brands have a direction that they need to maintain. A successful brand has an amazing narrative that hopefully is somewhat universal, can be translated across cultures and can resonate with different cultures.

From the moment that Stuart joined us through today and irrespective of what happens tomorrow in Brazil or China or Japan or with tourists, the key focus for us is going to be about how do we make our brand as emotional as possible, and as connected as possible with our consumer. That’s the key, key objective.

In 2008, Coach made a decision that probably served us well in the short term. Some folks may be aware, but we launched a collection called Poppy. It was an amazing success, it was right in the midst of the economic crisis and Poppy was a much more youthful and lower-priced collection. We had a lot of internal debate: do we launch it as a sub-brand [meaning] do we put it within the main collection as a collection within the store? We decided to do just that and, quite frankly, for a year or two, we were quite the heroes. The business was helped dramatically by it; the [lower-priced] product resonated with a certain consumer and it brought traffic into the stores. But the impact that it had over the medium to long term on the Coach positioning was not necessarily what one would have desired. For us, [that’s about] a business model that is more sustainable over the long term.

Brands can speak to consumers much more quickly and effectively than before. They don't need to buy 50 pages in traditional fashion magazines to do it.

[We're also] diversifying the brand [mix]. We made a very important decision about a year ago with the acquisition of Stuart Weitzman to bring in a new brand with a different positioning [and] new know-how that helps us diversify while bringing growth to our business as well. But nothing could be more important than for each of our brands to continue to innovate, resonate and connect with consumers through the creative vision of our teams. Nothing. Because that's what's going to help us create a long-term sustainable business model, and that's where the truth lies with the relationship with the consumer. [It's] not in the short-term steps we take.

IA: In my conversations with business leaders around the world — especially in Europe and in the States — I think there’s been potentially an over reliance on this travelling consumer. While the Chinese consumer travelling to shop to cities in Europe and the US is a very important consumer, so too is the consumer who shops in those same stores as a member of the local community. How do you cater to both types of consumers in a single store environment?

VL: I think anyone who’s benefitting from the travelling consumer has done a good job in a local market somewhere. If you’re benefitting from the Chinese tourist it’s because you’ve done a decent job [around awareness] in China, leveraging your brand and developing your business. Yes, there are some [travelling] consumers who may discover you in your home market, but when you start thinking of businesses on that scale, if you don’t have the local resonance, you’re most likely not going to have the resonance with the travelling consumer at scale either. It’s just a fact.

The first, most important market in that [respect] was Japan. If we look at the development of the last 20 to 25 years, there’s been a few key stages to [that market’s] tremendous growth. The first is [when] European brands [began] following the success that they saw in Japan by developing their businesses here in the US…because initially a lot of the larger brands had businesses that were 60 to 70 percent Japanese, by that I mean both within Japan and Japanese travelling abroad.

[More recently], China’s been an unbelievable opportunity for everybody. I think there was a time during SARS and right afterwards when people thought that duty free and the travelling consumer was going to die. But it didn’t because once there was a new market developed in China, the Chinese travelled in [unprecedented] numbers.

The key is, if you focus on the domestic consumer you’ll get the travelling consumer too. Most recently we’ve seen travelling consumers from South America, including Brazil and other markets. Now with their currency and domestic issues, [that business] has dried up a little bit. Eastern Europe and Russia [has] also dried up, but you still have greater numbers of travelling consumers today than we did 10 years ago. The numbers haven’t dwindled, they’ve continued to increase. It’s the year-on-year impact that everyone’s worried about. The American retailers are seeing fewer Chinese because of the domestic issues in China and the currency. We’re seeing fewer Brazilians too.

But I don’t know [if it’s true] that the US and European brands have focused less on the American consumer than they should have. Anyone who is truly thinking about developing their brand globally is focused on a few key markets. There’s no doubt that that’s still probably Japan, which two years ago they weren’t, but now they refocused on it thanks to the Chinese. China, some other parts of Asia, Europe and the US are still the main drivers of global business.

Then you have some small pockets in the Middle East, Latin America and a few other areas that are going through some turbulent times today, but long term, I’m excited about the opportunities ahead of us. When you think about the development that is still to take place beyond China, whether it be India or Latin America that no one’s talking about but will come back, we have to not be too focused on short-term impacts to the business and really think about where it’s going to go long term. The reality is you’ve got half of the world still living in rural areas. Even in China, half of the population is still rural and urbanising. And obviously there’s India, where you still don’t even have infrastructure beyond a handful of malls that have yet to develop.

IA: The other shift we’re seeing is a generational one. Millennials and the generation following them relate differently to luxury brands. For a heritage brand like Coach, I wonder if there’s a bit of the younger consumer psyche that plays into motivations like “I don’t want to buy the brand my parents bought.” How do you stay relevant to this less loyal, slightly more impulsive consumer who is engaging in so many different channels and in a completely different way?

VL: When I was growing up, I didn’t want to buy the brand my parents bought either. I think that’s typical of most generations. And I think you nailed it when you talked about the access of information. If there’s one major difference that our kids and the millennial generation and the generation following them are living with, it’s that. Access to information is having a massive impact on a couple of very important behaviours.

One is how much they study beforehand and how quickly they can compare things by shopping digitally before they even shop physically. There’s also the transparency of that information, how quickly it flows and the speed at which information can become old. I think that has a much bigger impact on the amount of choices they have [because technology like mobiles] are with us 24/7.

Does that mean that brands are less important? On the contrary, what I think it means is that being different is more important than ever. That the amount of perceived sameness has increased dramatically, and that has a lot to do with competition: whether it’s a material or handbag shape. When you go to a department store or specialty store or walk down 5th Avenue and try to look for some differentiation, it’s a bit harder to find today than it was yesterday — and for a lot of reasons.

First of all, there are more brands, and they themselves can speak to consumers much more quickly and effectively than before. They don’t need to buy 50 pages [of advertising] in traditional fashion magazines to do it. They can give their handbag to a celebrity and have 60 million views overnight or put it in a video.

So does that then change what we need to do? Absolutely not. I think history is still important. Heritage is important and quality is absolutely important, and when that is authentic, you win. Because they have more information, and you can’t make this stuff up anymore, because the information is [out] there. You used to be able to go to develop Japan and take it slow and differentiate pricing and only a few years later someone else would know about it, and today it’s all instantaneous.

My kids grew up in the era of skateboards, they’re more intrigued by what’s happening with Supreme, perhaps, than what’s happening with a fashion show out of a traditional house. But now, a lot of the traditional houses are referencing a lot of street fashion. In order to stay relevant, you have to engage with popular culture and what’s happening in New York, LA, London and Paris. The brands that do that well are still true to themselves and are therefore perceived as honest to the consumer.

IA: Do you think it’s opened up an opportunity for people to break out of the existing fashion business model? It seems like we’re in a moment where everyone’s deciding to do their own thing.

VL: Again, I think each brand is going to try to find its own road. But the reality is that, if you ask the average consumer what Cruise is, what Fall/Winter is, what Spring/Summer is, [they don’t see the distinction]. Yes, the most fashion-forward consumers are highly engaged and those maybe influence a lot of others. But generally they don’t. So we know that fashion week — and this is our view — is about us telling our story to a couple of key constituents.

First and foremost, we tell our story to our own internal team. They need to understand what we stand for, what our vision is, who the Coach woman and man is and how he or she is evolving. Two, we want to tell our story to retailers and partners. We believe in a multi-channel, multi-tiered distribution approach, so we’re engaging with speciality stores and department stores across the world. We want them to know who we are, and that they can’t come in and see now buy now.

They have an annual planning cycle and a seasonal planning cycle and open to buy. If they’re going to engage with us for the next season, we need to show them the product for the next season, not for now and say we can deliver today. And even if we did, imagine if we did, then what does that mean? If I’m going to give them something now, I’ve planned it, I’ve bought it, I’ve manufactured it and it’s sitting in my warehouse so someone has to do the planning six months ahead, there’s no way to avoid that. We’re not yet at the period where each of us has a 3D printer in our home, and we can press the button and there it is, which would be the end of third party distribution. Technology is not at that point.

So I believe that one of the key limitations is time. Depending on who and where you are — at least for most of us at the premium end — it still takes anywhere from nine to 12 months to go from the idea, to getting a great quality product where you maybe develop materials. [We sometimes have to] go to the detail and look at them and say “I’m not inspired by the colour of that stitch, I want different colour or different spacing.” It’s often through that kind of experimentation that you get something that truly inspires people. I don’t know yet how we’re going to shrink that to a much shorter period of time — at least [not] in the short to medium term.

And the third party that we deal with during these fashion weeks is the press. There’s short term lead press – that’s what’s providing a tremendous amount of stress to the system – because they see it and show it today, but the consumer’s not getting it until six to nine months down the road. This is what has created a tremendous amount of discussion that, quite frankly, I don’t know if there’s one answer for. I think some brands are still going to show today for Spring/Summer and show in September for Spring/Summer and they might have a few items that they’ve pre-bought and put on the runway and some won’t. Some will plan six months ahead and show it. But it still means they had the exercise six months before. You can’t avoid it.

IA: I would be remiss if I didn’t ask you about the current American market situation. US consumers are still not returning to spend in droves despite the macroeconomic fundamentals of low unemployment and a generally stronger economy than has been the case for years. What do you think is going on with the American consumer?

VL: I don’t know if there’s one specific data point that one can point to the health of the American consumer. In our space, there’s a lot of discussion around the impact of the tourist. And if you take that out, that speaks to the second question: what is happening with the American consumer itself?

I wish I could give you one clear answer but obviously what one reads and hears and what we all discuss a lot about is…increased competition, increased amounts of inventory in the channels, increased promotional activity as a result, what that means in terms of what consumers are accessing and what the web does on some of these promotional channels as well. We put a lot of analytics behind it, but of the number of units being sold is still increasing because they’re just at a lower price point. But we see the prices leading to a lack of growth that we would normally see on the top line in dollars, as a result, and I think that’s one major question that is out there.

There’s been a lot of discussion about uncertainty [too] as it relates to the [US] election and other things. I’m not sure about that quite honestly. When I’m talking to our team and stores and what they hear and don’t hear from the consumers, I think there’s a lot of desire for consumers to be inspired by newness, and when there’s been more fashion is when we’ve seen [them] engage the most, so we’re excited by the steps that we’re taking in that direction. Consumers [are] looking again just to be inspired with so much competition [and with] so much attention focused on pricing, you have to get beyond pricing [to] get to emotion.

Emotion trumps price. That’s a fact. If you have a brand that people truly desire, we have seen — and there are many examples today in all kinds of categories — that consumers will engage with you if you’re able to manage pricing and distribution effectively.

This interview has been edited and condensed.

BoF Voices

To learn more about VOICES, BoF's new annual gathering for big thinkers, visit our VOICES website where you will find all the details about our new invitation-only global gathering to be held in December in partnership with QIC Global Real Estate.

© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
The State of Fashion: Technology
© 2022 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions and Privacy policy.
The State of Fashion: Technology