brand challenges

Coach Stretches Itself Thin with Brand Extensions as Sales Continue to Fall

Posted by Barry Silverstein on October 23, 2013 04:41 PM

The brand graveyard is littered with those that have lost their way, primarily because they try to change who they are and what they stand for. As any brand marketer knows, it is exceedingly difficult to change the perception of an established brand.

Coach is a good example of that difficulty. Once renowned for its leather goods, the luxury brand has made a concerted effort this year to reinvent itself as a lifestyle brand with broader appeal beyond its signature wallets and handbags. The company has introduced an array of products, including footwear, women's apparel, jewelry, sunglasses, and watches. In an attempt to gain the attention of men, Coach even brought to market a luxury baseball glove with accompanying bat in July. (The bat has since been discontinued.) That gambit, at least, seems to be paying off, as sales of men's accessories—bags, driving gloves, and even alligator-wrapped flasks—have increased by 25 percent, according to Bloomberg Businessweek

Unfortunately, the men's line has been about the only bright spot for the company. North America same-store sales dropped nearly 7 percent in the three months to September 28, and the company said to expect a similar skid through the end of the fiscal year, which closes in June 2014. Ironically, Coach continues to move its discounted handbags at its outlet stores, which account for 60 percent of North American sales (double the sales from seven years ago), according to Quartz. Of course, that simply reinforces the fact that Coach is really a one-product brand.

"The recent trajectory of Coach is testament to the inherent dangers of diversification, as consumer loyalty is hard won, but easily lost when clarity and relevance are compromised," Rebecca Robins, Director, EMEA and Latin America at Interbrand, and co-author of Meta-Luxury: Brands and the Culture of Excellence, told brandchannel. "As the brand has looked to extend beyond its core offering and expand into new markets, there seems to be increasing confusion around what the brand stands for."

Despite falling sales, Coach is actually opening 20 new stores and undergoing the expansion of 20 more in North America, most with an emphasis on products other than handbags. CEO Lewis Frankfort told Business Insider, "We are continuing to drive our men's business globally through new standalone and dual-gender stores and by dedicating more space for a broader men's assortment in existing retail stores."

But there is only so much Coach can do, especially in light of the competitive pressure exerted by the likes of Michael Kors, Kate Spade, and Tory Burch, "accessible luxury" brands that typically appeal to a younger demographic than Coach. "Coach is losing position at the top of the affordable luxury sector to several younger, trendier brands—some privately held and others public," notes The Motley Fool. "Michael Kors alone is planning to open 50 retail stores in North America in 2014, and has had a spectacular 2013 and Q1 FY 2014. It's also in the aspirational luxury market, and is taking the sector by storm."

Coach finds no comfort when it comes to brand perception, either. Laura Champine, an analyst with Canadian firm Canaccord Genuity, said, "We find the current product in stores to be less compelling, and we do not believe it is resonating as well with younger customers as competitor Michael Kors." Indeed, "Having a rock solid conviction about what a brand uniquely excels in is key to brands that have succeeded in diversifying," Robins notes. "They have done so by remaining true to their DNA, while evolving to remain relevant across new generations of consumers."

Stephanie Stahl, executive VP of marketing for Coach, adopted a more upbeat tone in an interview with Adweek. "For us, to continue to compete globally, we feel that this is an opportunity for us to broaden out into lifestyle, which is largely just communicating what we already do in a more fashion-relevant way," said Stahl. "Every company has to do its own thing in its evolution. Today, most people know us for selling wonderful handbags. This is an opportunity to let people know that we have much more than that."

Still, one has to wonder whether, in the future, Coach will re-connect with consumers—or will its current attempt to expand beyond its core competency be little more than moving around the deck chairs on the Titanic?


Matthew Reece Canada says:

I feel this article and the commentators quoted totally missed the mark on what the root cause of Coach’s problems are. What evidence is there that the brand extensions haven’t worked? There has been a drop in sales but that correlates with the brand extensions and there is no evidence that it is a cause. How about the two key items that this article glosses over: erosion from better designed and trendier brands, such as Michael Kors, and Coach gutting its own brand by selling “discounted handbags at its outlet stores, which account for 60 percent of North American sales”. How can a brand credibly position itself in luxury goods when most of its revenues come from discounted product. Didn’t anyone learn from Calvin Klein when the licensees were selling jeans at Costco and the brand imploded? Every time I walked into a mid-grade department store and saw a huge rack of Coach bags it was obvious to me this was coming. Forget brand overextension, how about brand dilution?

In addition, the article actually contradicts itself on brand extension. It notes, “sales of men's accessories—bags, driving gloves, and even alligator-wrapped flasks—have increased by 25 percent”. This in fact shows the brand is capable, quite easily of being extended. It’s quite a stretch to even call expanding from bags to shoes “lifestyle”. It’s not like they are trying to sell bedding and towels under the Coach identity.

October 24, 2013 04:21 PM #

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