516 West 34th Street
"Classic American style"--for 60 years, these words have defined the character and spirit of the Coach brand.
Today more than ever, Coach embodies "classic American style"--now across a broad and modern product offering of lifestyle accessories in a number of distinctive categories, styles and fabrications. As the brand has grown and evolved, so has the company: from manufacturing to marketing driven; and from a small family business based in a New York loft to a publicly traded company with worldwide sales of $600 million in fiscal 2001.
At Coach, the brand is at the core of the company's vision and strategy. The values of the brand--customer satisfaction, integrity, innovation and collaboration--are the reasons Coach's people come to work each morning. The strength of the Coach brand is, ultimately, what makes Coach the company it is today.
Coach, Inc. is a designer, producer, and marketer of a prestige line of handbags, briefcases, luggage, and accessories. The company made its reputation selling sturdy leather purses in unchanging, traditional, classic styles, and it remains one of the best-known leather brands in the United States and has a growing reputation overseas. In addition to its main product line, the company offers Coach brand watches, footwear, and home and office furniture through agreements with licensing partners. Nearly two-thirds of company sales are derived from direct-to-consumer channels. These include about 190 Coach stores in the United States--of these, approximately 120 are retail stores and the remainder are factory outlets--direct mail catalogs, and an online store. There are also 175 Coach locations outside the United States, in 18 countries. The company's indirect channels include the wholesaling of Coach brand products to approximately 1,400 department and specialty store locations in the United States. Formed in 1941, Coach was family owned and operated until 1985, when Sara Lee Corporation purchased the firm. Coach remained a subsidiary of Sara Lee until 2001, when the firm regained its independence via a spinoff.
Era As a Family-Run Business Beginning in the 1940s
Coach was founded in 1941 as a family-run workshop based in a loft on the edge of Manhattan's garment district. The company started with just six leather workers who made small leather goods, primarily wallets and billfolds, by hand. In 1946, Miles Cahn, a lifelong New Yorker, came to work for the company. By 1950, he was running the factory for its owners. The company's employees, members of Local 1 of the Pocketbook and Novelty Workers Union, continued to manufacture billfolds throughout the 1950s, producing small profits for the small concern.
By 1960, Cahn had taken notice of the distinctive properties of the leather used to make baseball gloves. With wear and abrasion, the leather in a glove became soft and supple. Following this model, Cahn devised a way of processing leather to make it strong, soft, flexible, and deep-toned in color, as it absorbed dye well. At his wife Lillian's suggestion, a number of women's handbags were designed to supplement the factory's low-margin wallet production. The purses, given the brand name Coach, were made of sturdy cowhide, in which the grain of the leather could still be seen, instead of the thin leather pasted over cardboard that was used for most women's handbags at the time. This innovation marked the company's entry into the field of classic, long-lasting, luxury women's handbags that Coach would come to define.
In 1961, after more than a decade of running the leather workshop, the Cahns borrowed money to buy out the factory's owners and take possession of Coach. Throughout the next decades, Coach produced solid handbags in an assortment of basic styles. For the most part, the company steered clear of fast-moving trends, opting instead for traditional, conservative elegance and quality. Gradually, high-priced Coach products developed a reputation and a certain cachet. In the late 1960s, as fashion changed radically, Coach deviated somewhat from its traditional product line, introducing additional models that were designed to complement trendier styles in clothing. In 1969, the company began to market items such as a structured bucket bag, which was produced for only one season, and a fringe "shimmy" bag.
By the early 1980s, the Coach plant occupied four floors of a building on West 34th Street. The company was manufacturing purses, briefcases, billfolds, and belts, using skilled laborers, many of whom had emigrated from Argentina. Paying their workers wages that were a dollar or more higher than rates in other factories, the Cahns enjoyed good labor relations with their employees, which allowed them to produce a steady flow of Coach products.
In the late 1970s and early 1980s, Coach took two steps to diversify its channels of distribution. Under a new vice-president for special products, the company began a mail-order business, and also began to open its own specialty stores, to sell Coach products outside a department store setting. Sales of Coach products grew steadily throughout this period, until demand began to outstrip supply. Department stores were selling all the Coach bags that the company could produce, and by the early 1980s it had become necessary to ration the products to various vendors. Despite the potential for vast expansion of their market share, the Cahns continued to run their business in the same way that they always had. They had little desire to move their factory out of its urban Manhattan setting, to a place where rents and taxes might be lower, space more readily available, and wages cheaper. In addition, they did not want to change their methods of production so that goods could be made more quickly, at the expense of quality or workmanship. Instead, they continued to run their business on a personal level, maintaining first-name relationships with many of their workers, and inviting department store buyers from New York to tour their factory, to observe the craftsmanship that went into each Coach bag.
In 1983 the Cahns purchased a 300-acre dairy farm in Vermont as a weekend diversion from their business in New York. Although the property was intended to provide a vacation home and retirement destination, the Cahns began to raise goats and market goat cheese under the brand name "Coach Farms" shortly after buying the farm. By 1985, they were commuting twice a week between Vermont and New York. In the summer of that year, after determining that none of their three children had any desire to take over the family leatherware business, the Cahns decided to sell Coach.
Expanding Under Sara Lee in the Late 1980s
In July 1985, the Cahns cemented an agreement with the Sara Lee Corporation, which also sold foodstuffs and hosiery. In return for a sum reported to be around $30 million, the conglomerate took control of the company's factory, its six boutiques, and its flagship store on Madison Avenue in New York. Sara Lee promised that it would continue to operate Coach in the way in which it had always been run. At the time of the sale, the Cahns split $1 million of the proceeds with 200 longtime employees, on the basis of their seniority. Taking over leadership of Coach as president was Lew Frankfort, who had joined the company in 1979 as vice-president of business development.
Under its new owners and new president, the company prepared for a rapid expansion. The basic strategy for this expansion was to add to the number of products that bore the Coach name, and to increase the number of customers buying these goods. Accordingly, the company added several new styles of handbag in an updated classics line, and also began a major expansion of its channels of distribution. In early 1986, new boutiques were opened in Macy's stores in New York and San Francisco, and in two Bamberger's stores. Additional Coach outlets were under construction in stores in Denver and Seattle, and agreements had been reached to open similar boutiques within other major department stores later in the year. In addition, Coach opened its own stores in malls in New York, New Jersey, Texas, and California. By November, the company was operating 12 stores, along with nearly 50 boutiques within larger department stores. The company projected that the expansion would boost sales for 1986 to $25 million, a gain of 45 percent over the previous year.
A significant part of sales was expected to come from the newly introduced Coach Lightweights line of products, which featured lighter weight leather and bags with new shapes. This line was intended to broaden the company's customer base by appealing to women who lived in the South and West, where warmer weather made lightweight handbags more desirable. The Lightweights line featured handbags in smaller sizes, for ease of access, and lighter spring colors, such as taupe, light brown, and navy. This line quickly came to comprise 15 percent of the company's overall sales.
To keep up with growing demand for Coach products, the company doubled its workforce, leased additional space for factory operations, and expanded the work week to six days. Despite these measures, however, by the fall of 1987, Coach was again unable to meet all orders for its goods, and the company began to seek additional room for expansion. In addition, to better control the circumstances under which its products were sold, Coach slashed the number of department stores retailing its goods by 50 percent. Despite continued strong demand, the company did not increase its prices to keep pace with a sharp rise in the cost of leather. By the end of 1987, Coach had nearly doubled its revenues, despite its reduction of retailers and the increase in the price of leather.
In December 1987, Coach opened a new flagship store on Madison Avenue, in New York. The two-story store, with a marble and mahogany interior, featured an atrium and a gallery of leather art, as well as the full range of Coach products. The company expected to sell $5 million worth of handbags in the store's first year.
Coach solved its production problem by opening a plant near Miami, Florida, where its Lightweights collection was manufactured, in 1988. The plant's production supplied 22 freestanding stores and 300 different retailers, making Coach products available in more than 1,000 locations. Although the traditional line and the Lightweights products were emphasized, Coach further expanded its offerings to include more business items for men and women. Among the new products were briefcases, wallets, and diaries.
Coach's first nonleather product was introduced in 1988. Silk scarves, sold in four designs that related to leather goods, were planned to complement the other Coach products. Each of the 36-inch silk squares was manufactured in Italy and priced at $60. Although the company estimated that first-year sales of this line, which also grew to include men's ties and suspenders, would reach $2 million, the products were eventually discontinued, after it was determined that their equestrian designs, featuring bridles and stirrups, made them look too much like products from a Coach competitor, Hermès.
Coach took its first steps overseas in 1988. The company had long noted that many of the customers in its New York store were foreign tourists, and Coach executives believed that this indicated that demand abroad justified international expansion. The company began by opening Coach boutiques in England and Japan, setting up one outlet in Harrod's department store in London, and five in Mitsukoshi stores in Tokyo and other Japanese locations. These stores carried a full line of Coach products, and mimicked the look of Coach stores in the United States, with mahogany and brass fixtures and marble floors. The company planned to train foreign sales staff and hoped to take advantage of the low international value of the dollar to boost sales through lower prices.
As Coach continued its international push in 1989, opening a freestanding store on Sloane Street in London, company sales had quintupled to $100 million in a period of four years and the number of company stores had grown to 40. Coach established its first store in Continental Europe, with a 500-square-foot outlet in Stuttgart, Germany. By 1990, the Coach push to enter international markets had created 19 in-store shops in Japanese Mitsukoshi department stores, with six more slated to open in 1991. Coach solidified its position in the Japanese market by renewing its agreement with Mitsukoshi, making it the exclusive distributor of Coach products in Japan. In addition, Coach joined with another company to open a boutique in a Singapore shopping area, and Coach opened a store in Taipei, Taiwan. With international sales making up 10 percent of the company's revenues, Coach saw the Pacific basin as a key area for further growth.
The company's Far East push was driven by the popularity of Coach goods with Asian tourists in New York, and also by the belief that the company's understated style, lacking in logos or obvious status symbols, was beginning to supplant the vogue for flashy designer goods. To support sales of its products in the Far East, Coach began an advertising campaign to stress the ways in which Coach expressed the American spirit.
Coach's expansion overseas was coupled with domestic expansion, and production again was increased. In addition to its new facility in Florida, the company moved its New York area operations from Manhattan to Carlstadt, New Jersey.
Continuing to Expand the Product Line: Early 1990s
Coach's success in expanding its brand awareness had caused other manufacturers to imitate the company's trademark styles and shapes in their own products. To prevent this infringement of the company's unique designs, Coach sued a number of other manufacturers to stop them from imitating Coach styles. In 1990, the company won a suit in federal court against several other companies, including Ann Taylor and Laura Leather Goods. The ruling awarded the company damages for trade dress infringement.
Coach sales continued to grow in the early 1990s. By May 1991, revenues had increased by more than a fifth over the previous year, and annual sales had reached $150 million. The company continued to broaden its product line, while retaining the qualities identified with its prestigious brand name. Overall, Coach planned a dramatic shift in its identity in the 1990s. "We're going for positioning as Coach the brand, as opposed to Coach the leather company," the company's president told Crain's New York Business. "I can't see a limit to Coach's growth in the foreseeable future."
To bolster that growth, Coach hired a designer to lead a 16-person product development department, to create new objects that could be marketed under the Coach name. In its women's line, the company sought to introduce products in more fashionable colors, without watering down the Coach reputation. In this way, the company hoped to overcome the built-in drawback to high quality and timeless styling, which was that customers rarely needed to replace a product. It launched a line of desk accessories, and an all-leather travel collection was introduced.
In addition, the company began to sell a line of goods for men that included suspenders and socks. This fast-moving category had grown to provide 40 percent of the company's sales. Coach capped off its recent growth in products for men by opening two Coach for Business stores, which were devoted specifically to products for men, on Madison Avenue in Manhattan and in Boston. With these stores, the company hoped to shift its image, repositioning itself as a full-range accessory maker, rather than merely a handbag manufacturer.
Coach announced that it would move more aggressively into the leather accessories market and also try to market its products to younger customers in 1991. To do so, the company hired a new, young advertising agency, which designed a campaign featuring descendants of famous Americans using Coach products, with the theme, "An American Legacy."
By early 1992, Coach had expanded its number of stores worldwide to 53 and had enhanced its line of men's and women's socks, to further exploit the appeal of the Coach brand name. Later that year, the company added gift items, including picture frames and belts. In the fall, Coach increased the scope of its handbag line, introducing the Sheridan collection, which featured textured, treated leather that would not burnish like other Coach items but was also more scratch resistant; and the Camden collection, which was styled with brass accents.
Coach stepped up its catalog sales effort in the fall of 1992, mailing ten million mail-order brochures to former customers and likely prospects. The company's catalog operations, though small, were the most profitable of its branches. Coach turned to its mail-order operations to test market its latest innovation in November 1992, when the company began to offer leather outerwear. Providing five styles for men and women, made of soft, waterproof leather, the outerwear was joined by fabric luggage, another departure from Coach tradition, as the company tried to push the boundaries of its identity even further.
As Coach broadened its product offerings, it also broadened the variety of its handbags. Coach moved away from dark, staid colors to brightly hued bags, introducing the Manhattan collection in the spring of 1993. To keep up with demand for this wide variety of new products, Coach expanded its manufacturing activities to Puerto Rico. In late 1994 Coach opened a new flagship store in New York City, its first two-level unit and its largest store yet. The following year Frankfort was named chairman and CEO of Coach. Around this time, Coach expanded its product line yet again with the launch of the Sonoma collection, which included handbags, backpacks, wallets, and belts featuring relaxed styling and suede and textured leathers. The firm also opened the first freestanding Coach store in Japan.
Late 1990s and Beyond: Licensing and Going Solo
During the fiscal year ending in June 1996, Coach opened what it called its Pacific Rim flagship store in Waikiki, Hawaii, as a way to promote the brand to Asian tourists. In addition to continued international growth, the licensing of the prestigious Coach brand also came to the fore in the late 1990s. In 1997 the company entered into its first licensing agreement. It agreed to allow its name to be used on a line of watches to be developed by Movado Group. During fiscal 1998 a Coach leather phone case was introduced through a licensing deal with Motorola, Inc. The following year, a line of premium furniture bearing the Coach name was launched through a licensing deal with Baker Furniture Company.
Sales and profits at Coach suffered from 1997 to 1999 as a result of the combination of the economic difficulties in Asia and changes in consumer tastes, particularly a shift away from leather and toward mixed material and nonleather products. A revamp of the product line in 1999 aimed at reversing the sales slowdown, with an emphasis on attracting younger customers. The core handbag line began to feature more colorful cotton twill and other lightweight fabrics, and while the company maintained its classic leather offerings, a number of slow-moving colors were phased out. Still more license agreements led to the introduction of Coach picture frames, eyewear, and footwear. Coach increasingly offered in its shops, stores, and catalogs lower-priced accessory items whose affordability enabled younger consumers to buy a Coach product. The company also began remodeling its major retail stores in late 1999, seeking to better showcase its new assortment of products. Another important development was the launch of coach.com in October 1999, which marked Coach's entrance into e-commerce. On the manufacturing side, Coach looked to increase operating margins by turning increasingly to outsourcing and shifting from domestic production to production in lower cost markets. Whereas only about 25 percent of Coach products were produced by independent manufacturers in 1998, around 80 percent of the products were made by outsourcers just two years later. Coach was clearly making a rapid shift from manufacturer to designer and marketer while making sure that its manufacturing partners maintained the level of quality for which the brand was known.
While Frankfort was leading this revitalization effort, Sara Lee came to the decision to spin off Coach as part of its own reorganization. As part of the much larger Sara Lee, Coach had seen its revenues increase from about $19 million in 1985 to $540.4 million in 1997, before declining to $507.8 million in 1999. By mid-2000 there were 106 Coach retail outlets in the United States and 63 outlet stores. Prior to the IPO, the improved financial condition of Coach was already evident, as revenues for fiscal 2000 climbed 8.1 percent to $548.9 million and net income surged 130.9 percent, jumping from $16.7 million to $38.6 million. In early October 2000, Sara Lee sold off 17 percent of the newly named Coach, Inc. to the public. Through the IPO, 7.38 million shares of Coach stock were sold at $16 per share, raising $118 million on the New York Stock Exchange. Frankfort remained Coach's chairman and CEO. In April 2001 Sara Lee fully divested itself of its Coach holdings by spinning off the remaining interest to Sara Lee shareholders. Sara Lee netted $1.1 billion in the process. For the fiscal year ending in June 2001, Coach had very encouraging news in its first annual report: net income had jumped 65.9 percent, to $64 million, and net sales had surged 12.2 percent, to $616.1 million.
In addition to accelerating the development of new products and new product categories, modernizing its store designs, and improving its margins through outsourcing, the newly independent Coach also sought to further expand its channels of distribution both at home and abroad in the early 21st century. After opening 15 new retail stores in the United States during fiscal 2001, Coach aimed to open 20 more new stores for each of the next two years. Overseas, Coach continued to concentrate on the Japanese market, mainly because Japanese consumers spend a great deal more on a per capita basis on handbags than American consumers. Already boasting 76 outlets in Japan--62 department store boutiques and 14 retail stores--Coach sought to increase its presence in this important market by forming Coach Japan, Inc., a 50-50 joint venture with Japan's Sumitomo Corporation, in June 2001. Through Coach Japan, the company aimed to add another 25-30 Coach locations in Japan within two or three years. Another of the firm's growth strategies for the early 21st century was to promote the purchase of Coach products as gifts. It was already clear that a substantial amount of the company's sales were gift purchases, but the company felt it could take greater advantage of this fact by developing new products tailored to gift giving and by improving advertising and promotion. One clear example of a product line perfectly suited to the gift-giving niche was jewelry, and in November 2001 Coach introduced its first jewelry collection in a joint effort with Carolee Designs, Inc. The silver jewelry line featured some items that combined silver and leather. It seemed clear that Coach was well positioned to leverage its strong reputation for prestige and quality and its tradition of producing classic, and classy, products into a successful era of independence.
Principal Subsidiaries: Coach Services, Inc. (Maryland); Coach Leatherware International, Inc.; Coach Stores Puerto Rico, Inc.; Coach Japan Holdings, Inc.; Coach Japan Investments, Inc.; Coach (UK) Limited; Coach Europe Services S.r.l. (Italy).
Principal Competitors: Dooney and Bourke PR Inc.; Kate Spade L.L.C.; Gucci Group N.V.; I Pellettieri d'Italia S.p.A. (Prada); Wilsons The Leather Experts Inc.; Kenneth Cole Productions, Inc.; Hermès International; Jones Apparel Group, Inc.; Liz Claiborne, Inc.; Polo Ralph Lauren Corporation.
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