Teaching an Old Bag Some New Tricks

Teaching an Old Bag Some New Tricks coach online outlet Lew Frankfort is the sort of guy who gets emotional about handbags. The 57-year-old chairman and CEO of Coach Inc. points to a straw-and-leather basket in his Manhattan office and insists: "These bags are art!" The baby-blue Hamptons Weekend tote, which also comes in red, white, or black, is such a hit that he wants to make the style a fixture in next year's collection as well. And he's moved by how keenly people want Coach products. One woman he met in Japan, he says, waited more than six hours in line to get into Coach's new flagship store in Tokyo. coach factory outlet online You couldn't say that seven years ago. Back then, customers were starting to tire of Coach's thick leather bags -- sturdy and conservative and with all the sex appeal of a catcher's mitt. With kate spade and other high-fashion competitors gaining popularity, the cachet of Coach was waning. But thanks to a design renaissance led by President and Executive Creative Director Reed Krakoff, 39, who came aboard in 1996, Coach's high-end merchandise is once again au courant. Its bags, which can sell for more than $200, boast a range of new shapes, fabrics, and leather. Frankfort and his team also have extended the brand into watches, hats, shoes, sunglasses, coats, and even straw beach mats with the signature "C" in leather. And as competition has heated up in the midmarket category, Coach is gaining share by offering consumers an alluring combination of style and durability. As Paula Kalandiak, a research analyst with Wells Fargo Securities LLC, contends, "the quality for the dollar spent is unparalleled." Just as important, the financials now look as spiffy as the merchandise. Coach was spun off from Sara Lee Corp. in an initial public coachoutletonline offering in 2000, when that conglomerate decided the handbag maker was not a core business. Now Coach has risen to No. 12 on this year's Hot Growth list thanks to strong gains across the board. Annual sales over the past three years have increased an average of 12%, to $893.1 million. Earnings rose an average annual 72%, to $134.1 million, thanks largely to outsourcing (Coach no longer manufactures its own products), improved operating efficiencies, and better terms with suppliers. And Coach's stock price is up 46% in the past year. Frankfort credits Krakoff with finding a way to blend what he terms "logic and magic" to woo hip young buyers without alienating Coach's older consumers. Krakoff, a former design guru at Tommy Hilfiger USA Inc., was en route to Milan when he stopped by to check out a job with Frankfort in 1996. After a one-hour meeting, Frankfort canceled his appointments for the rest of coach online outlet the day to keep talking with the man who would become his new partner. Krakoff showed Frankfort a deep appreciation coach outlet sale for both the shortcomings and the strengths of the leather-goods maker in that meeting, describing coach online outlet the Coach brand as "amazingly consistent, narrow, and deep." Both men agreed, however, that it was time to move Coach to the next level. The following July, Coach unveiled the Ergo collection, which focused on a new, rounded shape for bags. By 1998, it moved into a mixture of leather and fabrics. Gone were the disconcerting ads that featured bag-toting descendants of icons like George Washington. "They seemed more standoffish and arrogant; more the exclusive domain of the rich," says retail consultant Kurt Barnard. Instead, the company used "living legends" such as Candice Bergen and John Irving to hawk its products and attract the younger buyers Coach yearned for. Today, the transition is complete: Current ads feature models toting Coach's cool products. The strategy is working. While the average Coach consumer is still around 40, the lucrative 18-24 market now accounts for 11% of its U.S. sales, up from 5% in 1996. Getting them young is crucial to building brand loyalty, Frankfort says. Analysts note that the company is attracting more first-time buyers to its 150 Coach retail stores, while its core constituency continues to buy. And sales in Japan, where Coach struck a joint venture with Sumitomo Corp. in 2001, are also booming and could total 20% of revenues this year. The line is so hot, in fact, that Coach might be tempted to slap that "C" on just about anything. And that could be its downfall. Designer Danny Seo wonders whether Coach is becoming too accessible and overexposed. "Every woman doesn't want to have a 'C' logo bag if everyone else does," he argues. But Krakoff wants to grow without brand extensions that go too far. He doesn't envision, for example, Coach bed linens. "I don't see us in the home business," he says. Instead, he wants to create more accessories and revisit old classics like the duffel bag, but with new fabrics or some other twist. Coach's transformation is already so entrenched that some younger customers can't quite believe they're buying a brand that has been around since 1941. "It looks pretty trendy for something that old," says Susanna Liu, a 27-year-old marketing executive, while shopping in the company's flagship store on New York's Madison Avenue. As long as it keeps shoppers coming in the door, Coach is happy to live with the contradiction. By Diane Brady in New York Before it's here, it's on the Bloomberg Terminal. LEARN MORE