Riding the High Road at Coach

Sept. 19, 2007
Strong expectations of both employees and value chain members make a solid foundation for brand extension, expansion.

A willingness to take risks, backed up by an unwavering focus on all sides of the business model -- from employees, to strategic and supply chain partners and continuing all the way down to the consumer -- are the means to the end of continuing profitability and sector leadership for New York-based Coach Inc.

This IW 50 Best Manufacturer, founded back in 1941, has been producing luxury leather goods and accessories for decades. However, 2006 was a big year for the brand, as both geographic expansion (opening a flagship store in Japan) and brand extension (some new merchandise licensing deals, including an entry into the perfume market late last year) took Coach riding into previously unexplored territory.

As with any risky venture, a solid plan for retaining brand integrity must be established before striking out into new frontiers, especially for a company that deals in a high-end product where price isn't that important a consideration.

This focus has, for Coach, been established by the company's Global Business Integrity Program -- a strategy built around the principles of being "a good employer and a responsible and socially sensitive corporate citizen in the locations in which the corporation conducts business."

This is no abstract set of values - the company's Global Business Integrity Program consists of three very real documents written with the express intent to inform employees and strategic partners of Coach's respective expectations of them, and, according to the company Web site, "sets forth the ethical and legal responsibilities all Coach employees and those who represent Coach's good name are expected to uphold."

These documents include a guide for the company's worldwide employees and a guide for the company's worldwide strategic partners (the Global Operating Principles document) that sets forth the minimum standards by which the leather goods manufacturer, whose goods are mostly produced by third parties, expects each strategic partner will operate and conduct business.

Importantly (especially in these days of increased consumer scrutiny), these two sets of global principles also convey Coach's values, commitments and goals to what the company refers to as "public constituencies."

Finally, Coach has developed a set of stringent guidelines for firms from which Coach sources products, including contractors, joint venture partners and suppliers of goods and services. These Supplier Selection Guidelines are set forth separately than the first two, but in today's global manufacturing supply chain, loom just as large in importance.

The new ventures, and the focus that make them possible, is paying off for this luxury brand. For the full year of 2007, direct to consumer sales rose 30% to $2.1 billion from $1.61 billion generated in fiscal 2006. Overall, North American comparable store sales for the fiscal year increased 22.3%, with retail stores up 16.4% and factory stores up 30%.

Coach, Inc.
At A Glance

Coach, Inc.
New York, N.Y.
Primary Industry: Leather Goods
Number of Employees: 7,500
2006 In Review
Revenue: $2.11 billion
Profit Margin: 23.4%
Sales Turnover: 1.3
Inventory Turnover: 2.26
Revenue Growth: 23.45%
Return On Assets: 36.69%
Return On Equity: 47.86%

According to company statements, results for the quarter and fiscal year reflected strong gains in U.S. department stores where sales at POS rose about 30% in both periods. In addition, sales at retail increased at a double-digit pace at international wholesale locations.

Such continuing growth, both domestically and internationally, means all the world's a stage for Coach. According to Lew Frankfort, chairman and CEO of Coach, "During fiscal year 2008, we will open about 40 new North American retail stores, at least six U.S. factory outlets, and 15 to 20 new locations in Japan, along with expanding key locations in both geographies. In addition, we expect to open about 30 international wholesale locations, working with our distributors, including at least five in mainland China."

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About the Author

Brad Kenney | Chief Marketing Officer

Brad Kenney is the former Technology Editor of IndustryWeek and now serves as director of the mobile/social platforms practice at R/GA, a global marketing/advertising firm in New York City.

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