Coach: Riding the Wave of Premium Pricing
Victor Luis stood looking out the window of his office on 34th Street in Manhattan’s
Hell’s Kitchen neighbourhood. It had been just over a year since he had taken over as
CEO of Coach, Inc., a position that had previously been held by Lewis Frankfort for 28
years. Under Frankfort’s leadership, it seemed Coach could do no wrong. Indeed, over
the previous decade, the 73-year- old company had seen its revenues skyrocket from
about $1 billion to more than $5 billion as its handbags became one of the most coveted
luxury items for women in the United States and beyond. On top of that, the company’s
$1 billion bottom line—a 20 percent net margin—was a common annual out– come.
Coach’s revenues made it the leading handbags seller in the nation. The brand’s
premium price and profit margins made the company a Wall Street darling.
Right around the time Luis took over, however, Coach’s fortunes had begun to stumble.
Although the company had experienced promising results with expansion into men’s
lines and international markets, it had just recorded the fourth straight quarter of
declining revenues in the United States, a market that accounts for 70 percent of its
business. North American comparable sales were down by a whopping 21 percent over
the previous year. Once the trendsetter, Coach lost market share to younger and more
nimble competitors for two years in a row. Investors were jittery, causing Coach’s stock
price to drop nearly 50 percent during that time. After years of success, it now seemed
that Coach could do little right.
Artisanal Origins
In a Manhattan loft in 1941, six artisans formed a partnership called Gail Leather
Products and ran it as a family-owned business. Employing skills handed down from
generation to generation, the group handcrafted a collection of leather goods, primarily
