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Coach Inc. looking to reignite lax sales

Amid slumping handbag sales and weak holiday-quarter results,

Amid slumping handbag sales and weak holiday-quarter results, Coach Inc. unveiled a new strategy to sell clothing and shoes. (July 29, 2011) Credit: Bloomberg News

Coach Inc. on Wednesday reported weak holiday-quarter results and unveiled a new strategy for shoes and clothing.

The disclosures spooked investors with the notion that the days of strong demand for Coach's premium leather handbags may be numbered.

The company's prescription for reigniting drooping sales in North America, its biggest market by far, calls for it to become a "head-to-toe" lifestyle brand by moving further into segments where it is a minor player, including shoes and clothing.

Shares of Coach, which also missed earnings estimates by a nickel, closed down 16.36 percent to $50.75 Wednesday, slashing the company's stock market value by nearly $2.7 billion.

Wall Street, long accustomed to seeing Coach post large sales gains -- company revenue rose 14.5 percent last fiscal year -- was unimpressed, seeing the redefinition of a 72-year-old brand a venture fraught with risk.

"It means management thinks the core [business] can't grow," Morningstar analyst Paul Swinand told Reuters, saying the new strategy could hurt the brand since footwear is not its forte.

Comparable sales in North America fell 2 percent during the holiday quarter, only the third decrease in 11 years. The company also forecast flat comparable sales there in the second half of its fiscal year.

Last fiscal year, they rose 6.6 percent.

In a bid to diversify away from handbags, Coach said it will "re-launch" its shoe section at 170 of its 356 stores in March, and has begun to install shoe "salons" to better showcase its footwear at a few flagship stores.

That will be followed by an increased offering of clothing, watches and jewelry, categories Coach already sells, and fancier presentation as part of a rebranding that will be more visible by the 2013 holiday season.

The idea is to broaden selections and present them more invitingly to face off against smaller but increasingly popular rivals like Michael Kors Holdings Ltd., privately-held Tory Burch, and Fifth & Pacific Cos. Inc.'s kate spade, whose same-store sales rose 27 percent last quarter.

Those three brands all sell handbags, clothing and shoes.

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