Coach Inc.

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Coach Inc.

founded: 1941

Contact Information:

headquarters: 516 west 34th st., floor 5
new york, ny 10001-1394 phone: (212)594-1850 fax: (212)594-1682 url: http://www.coach.com

OVERVIEW

Coach Inc. is a specialty retailer that designs, manufactures, and markets quality leather goods and accessories. The company originated in New York in 1941 as a family run artisan and craft studio. For decades the company was regarded as a manufacturer of classic, practical pocketbooks and wallets. Its reputation for solid but uninteresting products allowed the company to operate for many years with little publicity or notice. Ultimately the company's traditional image began to take on a negative connotation, and Coach products were described as dated or old-fashioned. In 1985 the company was purchased by Sara Lee as part of its retail division. It wasn't a natural fit amongst the cheesecakes and cookies, but the new management resuscitated the failing company. In recent years Coach has emerged as a strong presence in the fashion world with cutting edge new designs, expanded product lines, and state of the art marketing and distribution channels. In recognition of the company's new found clout, Sara Lee spun it off in 2001 to operate as a publicly owned fashion and leather retailer.

COMPANY FINANCES

Coach posted revenues of $616.1 million and a net income of $64.0 million in 2001. These figures represent a continuation of the company's growing profitability. In 2000 the company recorded a net income of $38.6 million on $548.9 million in revenues, up from $16.7 million in income on $507.8 million in revenues in 1999. Equally impressive is the company's profit margin, which has grown from 3.8 percent in 1999 to 7 percent in 2000 and 10.4 percent in 2001. Although Coach is a traditionally American name, it has expanded its international customer base to include 18 countries. Japanese consumers generated 20 percent of Coach's $616 million in revenues for the year 2001.

ANALYSTS' OPINIONS

After experiencing several years of losses from 1997 to 1999, Coach polished its dusty image and analysts are hailing it as a shining star in the competitive fashion world. During the 2001 holiday season, sales of Coach products soared without benefit of deep discounts and in the midst of a recession. Lehman Brothers analyst, Robert Drbul, said the public considers Coach products "must-have items." He expected revenues from Japanese expansion to bolster sales figures even further. The company has done exceptionally well since its separation from Sara Lee. Drbul went on to observe, "The brand has a tremendous amount of momentum." He predicted even stronger stock prices in 2002 and 2003. Other analysts agree with this assessment. David Lamer of Ferris, Baker Watts expected sales to be fueled by the eager Japanese market where the growth potential is huge. Eric Beder of Ladenburg Thalman & Co. was also enthusiastic about the company's prospects, saying, "Coach has been right on the money in terms of fashions. It turned out people wanted to pamper themselves with affordable luxury items like a Coach bag for $300 and a lot of utility."

HISTORY

Coach Inc. has been in existence since 1941, yet there is little information recorded on the history or evolution of the company. According to published reports, the origins of the company can be traced to a loft in Manhattan where a small group of artisans crafted leather goods. It is described as a family-run shop known for high quality products crafted by generation after generation of family members.

In 1985 Coach was purchased by the Sara Lee Corporation, but little creative movement occurred for more than a decade. Everything changed under the leadership of Lew Frankfurt. It was evident by 1996 that Coach was no longer the name brand of choice for the fashion conscious. Hip European designers such as Gucci and Prada were no longer making products reserved for the rich and famous. When the elite fashion labels began designing stylish accessories at affordable prices, Coach's loyal customer base began to disappear. The classic, simple designs were considered antiquated, and this image did not appeal to consumers, particularly women, of any age. Frankfort illustrated this point by noting that women were still willing to carry the sturdy high-quality Coach wallets, but they would be tucked inside a trendy shoulder bag from Prada. Coach products were no longer a sign of status with American women.

Frankfort made plans to update the company's offerings and engineer an image makeover. In December 1996 Frankfort scored a coup when he lured designer Reed Krakoff to Coach. Krakoff was about to move to Italy to pursue a career in fashion design when Frankfort wooed him into accepting a position at Coach as its first executive creative director. Krakoff brought more than just design expertise to the firm. He brought an entirely new, modern sensibility to the brand and was a veteran of Polo Ralph Lauren and Tommy Hilfiger. He was on board at Hilfiger when it successfully re-invented itself as a diversified design label offering housewares, linens, accessories, and women's clothing in addition to its youthful sportswear.

During his first several years, Krakoff studied the Coach archive of products and styles and learned more about the brand. Armed with a solid knowledge of the company's tradition, he began the process or modernizing the product lines. Profits for the company were down in the late 1990s, but Krakoff and Frankfurt were working behind the scenes to re-engineer the company's image. Coach stores were updated to present a sleek, modern look. Collections were redesigned using mixed materials instead of all leather products. Production time for collections was shortened, allowing new merchandise to arrive in stores more frequently. When the new millennium arrived, Coach was moving forward with the times.

STRATEGY

The traditional Coach products and core collections were updated and ready for the next century. Krakoff and Frankfurt wanted to go one step further and transform Coach into a lifestyle brand. In order to do this, Coach needed to move beyond the familiar territory of handbags and briefcases. Every type of product was considered fair game for inclusion in this new initiative.

Despite the focus on new product development, the management did not lose sight of the opportunities to introduce existing products to new markets. Japan was a huge untapped market and its consumers were in love with the Coach brand. Plans for a Japanese flagship store were approved and expansion was underway.

INFLUENCES

After years of operating independently, Coach Inc. was forced to take a look at the world and its competitors. Although Kenneth Cole and Dooney Bourke were viewed as traditional rivals for the Coach customer, it was the fashion houses that caught the eye of management. Gucci, Prada, Ralph Lauren, and Tommy Hilfiger influenced the direction of the company. Gucci and Prada showed that it was possible to produce stylish, classy accessories at affordable prices. Leather was optional. Lauren and Hilfiger each managed to expand a small niche in the market and establish a branded line of goods. These were the firms and the individuals that influenced the evolution of Coach.

FAST FACTS: About Coach Inc.

Ownership Coach Inc. is a publicly traded company on the New York Stock Exchange.

Ticker Symbol COH

Officers Lew Frankfort, Chmn. and CEO, 55, 2001 base salary $500,000; Keith Monda, EVP and COO, 55, 2001 base salary $410,000; Reed Krakoff, Exec. Creative Dir., 37, 2001 base salary $450,000

Employees 2,700

Chief Competitors Coach Inc. is a specialty retailer that designs and manufactures high quality leather goods and accessories. Its competitors range from the ultra chic fashion houses Gucci and Prada to the traditional craftsmen of Samsonite and Wilsons The Leather Experts.

A COACH WITH WHEELS

Coach, the upscale leather products company, has joined forces with luxury car manufacturer, Lexus to create the ultimate ride. The partnership originated in 1996 when Coach first offered its design services to the car dealer. In spring 2002 the latest joint venture will hit the streets. The Lexus RX 300 will sport perforated leather trimmed seats and Coach-embossed headrests. The floor mats will also be crafted from Coach leather. The special Coach Edition car will come in Burnished Gold, Crystal White, and Graphite Gray. The price tag for this special edition interior only starts at $2,830. Customers who select this option will receive a black Coach Hamptons Bag and a Coach Signature Demi-Pouch handbag to hold what money they have left after purchasing of the car.

CURRENT TRENDS

Coach is diversifying its product lines through licensing agreements and strategic partnerships. Carolee Design Inc. is developing a jewelry collection featuring leather and silver items. Movado Group is responsible for crafting a line of Coach watches. Footwear will be designed by Jimlar and manufactured in Italy from fine leather. Shoes will coordinate with Coach bags. A leather furniture collection is available from Baker Knapp & Tubbs. All of these new ventures are part of the "lifestyle" brand that Coach hopes to establish.

PRODUCTS

Coach makes fine leather products. Handbags, purses, and wallets are the original offerings of the company and still account for a substantial amount of revenues. Handbags generated 57 percent of net sales in 2001. Women's accessories, wallets, and belts accounted for 12 percent of sales, while men's accessories were 8 percent. Business cases and computer bags, duffel bags and travel accessories combined posted 10 percent. Other small items such as gloves, scarves, and leather folios accounted for the remaining profits. The next several years will reveal the acceptance of the newly created lifestyles division and its offerings.

CORPORATE CITIZENSHIP

The company is always ready to help with a good cause. The investor relations department receives frequent requests for donations for use in fundraisers, auctions, and raffles. Coach has a history of generously giving back to the communities in which it operates and welcomes the chance to participate in events and lend the Coach name in support of worthwhile causes.

CHRONOLOGY: Key Dates for Coach Inc.

1941:: Manhattan Leather Goods founded in a New York city loft
1962:: First handbag designed after a paper shopping bag
1973:: Introduction of the Duffle Sac
1979:: Lew Frankfort joins Coach Inc.
1980:: Coach publishes first catalog
1981:: Opens first NYC flagship store on Madison Avenue
1985:: Coach is acquired by Sara Lee Corp.
1997:: Reed Krakoff joins Coach as first executive creative director
1998:: First mixed material bags produced
1999:: Coach launches Web site
2000:: Coach becomes a publicly traded company
2001:: Coach Signature collection is introduced

GOING TO THE DOGS

This isn't Coach's new merchandising strategy, but it could be. In an effort to attract younger, hipper customers, Coach has fashioned a collection of trendy items. The junior executives in training may not be ready to plunk down $500 for an expensive bag, but $150 for a pair of leather-trimmed sunglasses is fine. Leather head-bands, cellphone cases, and key rings are also popular items for the young and wealthy. For those who still live at home and need to walk the family dog, leather dog jackets are available for $108, and collars are a mere $48. All items come adorned with the Coach signature "C" embossed on the side. Even Fido can cruise the neighborhood in style, though there is no word on the creation of a line of leashes. Perhaps they are not considered luxury items since they are mandatory in most states.

GLOBAL PRESENCE

Coach is an American tradition, but the products are known around the world. International business accounted for 16 percent of sales in 2001. Coach distributes its products in 18 countries including Japan, Korea, Hong Kong, Singapore, and Australia. The Japanese market is the most lucrative, and Coach places most of its international promotional efforts in this area. It will open a flagship store in Japan and expects it to do tremendous business. Coach also relies on international partners to supply materials for use in the manufacture of products. Additionally, the company operates a product development team headquartered in Florence, Italy, which works with a design team in New York. The company requires all vendors around the world to operate in compliance with Coach's standards of integrity.

EMPLOYMENT

Coach Inc. has 2,700 employees in locations around the world. Positions range from sales associate and retail store manager to leather workers and designers. The company has design professionals headquartered in Florence, Italy, to be close to the heart of the fashion industry. Coach encourages creativity and integrity in all employees and considers each employee to be an extension of the Coach brand name.