The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
NEW YORK, United States — As the recently installed president and chief executive of Coach, Joshua Schulman spent 90 days travelling the world getting to know the American accessible luxury brand's business, 38 percent of whose total net sales in both the 2016 and 2017 fiscal years came from outside North America.
Schulman — who arrived in early June from Neiman Marcus Group, where he most recently served as president of Bergdorf Goodman and NMG International — hopscotched from Japan to Europe and back to the US. But the big insight, the big takeaway, happened in China, where he saw something that caught his attention: the Chinese, he says, already subscribe to the idea of Coach as a lifestyle brand.
"In most places in the world, Coach was born in the consumer's mind as a handbag brand and has been on a transformation to become a lifestyle brand," Schulman says, sitting in a slick conference room high up in 10 Hudson Yards, the still-new headquarters of parent company Coach, Inc., the budding aspirational luxury group that owns the namesake brand, Stuart Weitzman and Kate Spade & Co., which it acquired in July for $2.4 billion. Coach creative director Stuart Vevers' aesthetic thumbprint can be seen all over the space, down to the shearling-lined, worn-leather-covered pod chairs.
“What we find in China, where… the customer is younger, is that there's a whole generation that has been brought into [Coach] first as a lifestyle brand,” Schulman continues. “They have really embraced the ready-to-wear elements, the most elevated elements, of what Stuart does. So that was a highlight.”
Coach CEO Joshua Schulman | Photo: Courtesy
In some ways, Schulman's past experience neatly tied him up for the Coach role. Before NMG, he was chief executive of Jimmy Choo — which sold earlier this year to Michael Kors for $1.2 billion — and previously held senior positions everywhere from Gap to Gucci. A "brand guy", as one Bergdorf Goodman colleague put it, he also happens be a department store history buff — yes, that's right — who ran one of the most celebrated examples of specialty retail in the world, even if the traditional wholesale model is losing relevance.
“What's interesting about being at a brand versus being in a department store is that, when you’re at a department store, you are curating and selecting from other brands and you have a very broad view of what's happening in the marketplace,” he says. “When you're a brand like Coach that operates globally all over the world and across many different channels, you have a narrower view of the marketplace but a much deeper connection with the product and the brand from concept straight to the consumer.”
That 360-view of the industry may serve Schulman well in his new position, where he will need to address the challenges facing Coach in a tough market. Under the purview of Victor Luis — the former Coach chief who now runs Coach, Inc. — the brand embarked on the beginnings of a turnaround that has been relatively well-received by the market. (After hitting nearly $75 per share in March 2012, in April 2015 Coach shares hit a low of $28.93. They're now trading at close to $40, with spikes close to $50.)
During his tenure running the Coach brand, Luis cut costs as part of a drive that included eliminating 300 positions worldwide and reducing inventory levels. At the same time, he instituted in a major brand overhaul, led by executive creative director Vevers, who joined the brand from Loewe in September 2013 and was named Accessories Designer of the Year by the Council of Fashion Designers of America in 2017.
Vevers' critical success has come from his modern approach. Ripping a page from the playbook of luxury houses including Saint Laurent and Gucci, he developed a new Americana-led identity for Coach. Vevers has also turned to novelty items — notably, sweaters and key chains decorated with the now-staple "Rexy" dinosaur motif — to attract younger generations of consumers. "There is now a cachet attached to it that it had lost during its dark days," says retail analyst Neil Saunders, managing director at GlobalData Retail.
But while brands like Saint Laurent and Gucci have reported quarter after quarter of double-digit growth, Coach has remained more or less flat. In the company’s 2017 fiscal year, net sales at the Coach brand were about $4.1 billion, down just under 1 percent compared to the previous year, which the brand attributed to its wholesale retreat. At stores open at least one year, sales were slightly up 1.1 percent (excluding the extra week in the fiscal 2016 year).
In the 2016 calendar year, Coach dialled back on wholesale — exiting 25 percent of its 1,000-or-so doors in North America and investing more in its flagship stores, adding square footage and opening new locations, including a 20,000 square foot, three-storey “Coach House” on 5th Avenue in New York City, which launched in November 2016. In its 2017 fiscal year, which ended June 30, 2017, it also trimmed its store network in North America, closing seven full-line stores and six outlets, but increasing its square footage in the former by 5,000 feet. (Its international fleet increased to 543 stores, up 4 percent from 522 the year before.)
“I think that the establishment of worldwide flagship stores have changed the brand perception,”says Schulman, who also mentions the brand’s stores on Regent Street in London and Rue Saint-Honoré in Paris. “There’s a lot of work still to be done, but that’s why I’m excited about coming in — seeing the opportunity to transform Coach from being a handbag brand with lifestyle categories to a lifestyle brand with handbags out our core.”
In the last quarter of the 2017 fiscal year, Coach's efforts began to translate into results. Net sales at the Coach brand in North America were up 4 percent (on a 13 vs. 13-week basis), with direct-to-consumer sales up 5 percent and overall sales at stores open at least one year up 4 percent.
“Coach is in a good place, but still delicate — not back to full health as of yet,” Saunders says. “There are a lot of things that could go wrong. The new leadership has to be careful not to unravel what has been done to date.”
Schulman sees the growth opportunity for Coach in three major buckets: product categories, channels and geographies.
In North America in particular, Coach’s largest market, the company is still seen as a handbag brand. In fiscal 2017, 52 percent of net sales — about $2.3 billion — came from women’s pocketbooks, while $808 million (18 percent) was derived from men’s products, $721 million (16 percent) from women’s accessories — including leather goods like keychains and wallets — and $278 million (6 percent) from women’s “other products,” including clothing and shoes. It’s those less-developed categories — men’s, shoes and outerwear in particular — where Schulman sees potential for expansion.
“Stuart has presented this vision of the Coach man and the Coach woman and what their lifestyle is, but we haven't really fulfilled the promise yet of becoming a destination for categories other than other than women's leather goods,” says Schulman. “You know we have a tremendous opportunity to build the shoe business and to build an outerwear business. We already have a strong men's business that we can further amplify that.”
Shoes, in particular, offer a major opportunity. The company brought footwear in-house in 2017, letting its license with New York-based Jimlar Corp. expire and tapping outgoing Stuart Weitzman chief executive Wayne Kulkin as a consultant. And Vevers' footwear collection for the runway has already received quite a bit of praise. (His team includes industry-beloved shoe designer Irene Chung, who spent many years at Marc Jacobs.)
“The footwear space is not empty but it’s not terribly crowded — you can still carve out a differentiation,” Saunders says. “With apparel, you have to be very careful — you’ve got to have a real point of view and a real differentiation. It’s a very, very crowded space and it’s also a space that is very easy to get wrong.”
Saunders also points out that while the customer in China may be willing to shop head-to-toe from one designer, Western markets are moving away from complete lifestyle solutions and placing greater emphasis on individual products. “People are willing to invest in one brand if it’s great, but they also like to change it up a bit. They shop more widely,” he says. “They’re less focused on brand, more focused on actual product.”
Coach is focusing on outerwear — which, like accessories, are worn every day — as its entry point into a bigger clothing business. “There has been a casualisation of the workplace and a casualisation just in life in general and I think the customer uses three different things both for function and to signify their style: handbags, shoes and outerwear,” Schulman says. “It’s no accident that those three categories are where the focus is for us.”
And while China is a geographic focus — Coach plans to open more stores in the market in the coming years — Europe, where Coach still has plenty of space to grow, is another. That means more store openings — although Schulman was mum on how many or where — and also an increased presence via wholesale. “Most brands are heavily penetrated in Europe but we’re relatively new and have been having double-digit growth,” he says. “We have a lot of the key wholesale partners coming to us and telling us that there is a white space in the market for Coach and asking how we can accelerate our development there.”
A survey of Millennial and Gen-Z consumers by Galore in association with BoF
Schulman remains a big believer in wholesale and the halo effect the right partner can provide. (Consider the brand’s late-2016 collaboration with Colette.) “You want your wholesale partners to be a beacon for the brand and to drive the customer both to the point of sale within [their store], but also to drive them to the brand overall and to lead back to our store and our website and build a symbiotic relationship between the channels,” he says. “My focus is going to be on ensuring that the presence at wholesale is commensurate with the presence in our directly operated stores and that the customer is able to shop in whichever type of environment that she wants to.”
He's also keen to further develop the direct relationship with Coach customers, especially those it has wooed through Instagram and a coterie of Instagram-famous campaign stars, most notably Selena Gomez, with whom the brand recently released a limited-edition collaboration. On September 13, just a day after the brand's latest runway show, fans lined up before sunrise at the Coach flagship on 5th Avenue in order to meet Gomez, who teased the personal appearance on her 127-million followers strong Instagram account. (The post received nearly 3.5 million likes.)
In light of that, Schulman casts a critical eye over a July 2017 survey of 769 predominantly female consumers aged 13-34, conducted by Los Angeles-based youth publisher and marketing agency Galore in partnership with The Business of Fashion, in which Coach did not receive favourable ratings. (Brands like Chanel, Gucci and Saint Laurent were popular, while Burberry, Ferragamo and Coach suffered.)
“It was surprising to me,” he says of the survey results. “What I can tell you is that I was at Coach House yesterday with Selena Gomez, who appeared before thousands of fans thronging 5th Avenue. We are engaging with a young, passionate customer who is engaging with Selena but also engaging with the Coach brand.” While Schulman acknowledges that it wasn’t exactly easy to shop the product amidst the throng, he says that it was one the store’s biggest-ever days in terms of volume, and that the Selena Grace bag — a part of the collaboration — has become a top-performing style globally, both at the brand’s directly operated retail stores and also with wholesale partners.
Part of maintaining this momentum will mean hosting more news-making events — and ensuring that there are associated products worth purchasing. Schulman’s goal is to create a merchandising mix that is less handbag-intensive. “I think we can unlock the potential of those stores by filling them with more merchandise product categories, but we also need to further elevate the store experience… to bring to life our craftsmanship heritage even further,” he says. “And really develop cross-selling techniques to sell the whole lifestyle.”
Joshua Schulman and Selena Gomez at Coach House in NYC | Photo: Coach
That means selling across platforms, too. To be sure, Coach's sensitivity to the needs of younger generations — or at least its focus on pursuing those sales, either through earned or paid online marketing — is evident in the traffic its website receives. With more than 2 million Instagram followers, Coach attracted nearly 13 percent of overall traffic to luxury goods websites in the past year, ahead of the pack but lagging behind Ralph Lauren and Michael Kors, according to a September 2017 report from integrated digital agency PMX. (Just eight brands make up 78 percent of overall traffic in the luxury category.)
However, Coach does not disclose e-commerce figures, so it’s difficult to determine how much of its web traffic is actually converting to sales. As part of the company’s turnaround plan, Coach reduced a portion of its online business made up of off-price flash sales, which had transformed into a large portion of e-commerce revenue. While it once hosted three flash sales a week, it now does two-to-three events a month. Because of the course correction — put in place in order to further distance itself from the punishing discount cycle — the overall online business decreased in size. However, the balance between full-price and off-price online sales is now "healthier," meaning that it's now a more even split.
“I'm going to be really focused on the digital expression of our brand and how we connect the digital expression of our brand on a global basis with what we're doing in our stores,” Schulman says. “We now have a much cleaner slate to create a more compelling and convenient global digital presence.” One of the first big pushes under Schulman’s purview will be the launch of Coach Create, a new personalisation platform similar in concept to its in-store “craftsmanship bars”, which allow customers to co-create and individualise items.
As for Schulman’s other long-term ambitions? He’d like to see Vevers win the CFDA Award for women’s design, which would cement the label’s transformation from handbag stalwart to lifestyle purveyor.
“At the end of the day, when the customer understands what the brand stands for, is excited about the brand, relates to its values, and most importantly, loves it when she sees it, that’s when you know you’ve connected with her,” he says. “I think that's true whether you're running a department store, whether you're running an e-commerce business or whether you're running a global brand. It's creating those moments when the customer has to have that product and gets a lot of joy out of it, like the throngs of people on the street yesterday.”