1.
For nearly 70 years,
Coach (NYSE: COH) leatherware has been associated with “classic American style,” offering handbags (representing over half of overall sales), luggage, accessories, fobs and other knickknacks. A dominant player in the “affordable luxury” handbag category, Coach pursues a bifurcated strategy of operating “full price” and “factory” stores in different markets — but both under a single Coach masterbrand. Although the items may appear to be the same design and quality to ill-informed consumers, they really are two separate businesses, as
BrandCultureTalk recently found out to our chagrin.
4.
Coach, however, deliberately encourages conflation between full price and factory. On a recent business trip, we had some time to kill before a flight and popped into the
Coach factory store in Loveland, Colorado. Seeing what looked like a “real” Coach design, logo, tags, etc., we picked up a bag. Andrea Shaw Resnick, Coach’s Senior Vice President of Investor Relations and Corporate Communications acknowledges that the
Coach factory stores sell different merchandise but with the same excellent Coach quality at an “affordable luxury price.” Well,
maybe not. Two weeks or so after our bag was put into use the, “turnlock” fell off. Not a big deal, but certainly a defect that interfered with the essential function of closing the bag.
5.
We trotted over a short hop from
BrandCulture HQ to
Coach’s Century City outpost where we encountered Brianna and explained the failure. Brianna knew at a glance that we had a “factory bag” and explained that we were in a “full price” store where such a bag “would never be sold.” To further amplify the point, she pointed out the Coach equivalent of the
Scarlet Letter,
a tell-tale “FS” in the serial number designating “factory style.” Accordingly, she would not be able to exchange the bag or issue a refund — even though we presented our original sales receipt. Brianna did say we could ship our factory bag to Jacksonville Florida (at our expense) where a team of experts would determine within 4 to 6 weeks whether or not the bag. could be repaired.
6.
Just when this rigmarole seemed a bit much for a brand new defective bag, Brianna invited us to take a trip from Century City to the Coach factory stores in
Camarillo (47.6 miles) or
Barstow (126 miles) for a refund. Returning an item to a Coach factory store is inconvenient . . . by design. Normally Coach endeavors to locate its factory stores
at least 60 miles or an hour’s drive away from the full-priced outlets. One Coach brand, but two different businesses and very different brand behavior.
7. Full price Coach never has mass-market sales (although it does sometimes mail out targeted offers to preferred customers — see Comment 29 below). Factory Coach always has sales, sales and more % off sales!
8.
Why does Coach do this? We’re confident that Coach has reams of psychographic, demographic, market segmentation and focus group data —
bolstered by the 70,000 customer interviews the company purportedly conducts each year — that show that the bargain-crazed, coupon-addicted factory store customers and the upscale full price shoppers are distinct cohorts and never the twain will meet. Evidently Coach believes this is a representative factory store shopper:
 |
| full price |
9.
Conventional wisdom and even outside experts agree, including Kit Yarrow of Golden Gate University,
“Outlet shoppers are less fashion forward and more interested in saving money.” Outside of hard-core outlet shoppers, we suspect this is largely a load of piffle, and the reality is that sometimes people find themselves in factory store settings and sometimes not, and migrate freely between the two retail worlds. But we’re even more confident that from a brand perspective this operating methodology moves more merchandise, but puts Coach and its brand on thin ice.
10.
This is a dilemma of Coach’s own making, as the company sets a high bar for itself in its Mission Statement. In addition to asserting that its brand “represents a unique synthesis of magic and logic that stands for quality, authenticity, value and a truly aspirational, distinctive American style,” Coach borrows a play out of the
Lexus Covenant, in asserting that all Coach customers will be treated “
like guests in our own home.” You don’t see Toyota promising this for Camry and Scion owners. In reality, the standards of hospitality among Coach’s
15,000 employees evidently differ considerably for factory store guests vs. those of the full price stores.
- Coach makes bags and accessories — $4.16 billion of them in 2011. But its business is its brand. That’s what enables Coach to earn a gross margin that is not only among the very highest in the industry, but one that frequently approaches and even surpasses 80% (consider that when making your next Coach impulse purchase). With margins like these, Coach should consider investing a few bucks in a seamless brand experience to mollify factory-shopping slack-jawed bumpkins such as ourselves who inadvertently stumble into a “real” Coach store. Alternatively, instead of promising a common standard of quality and courtesy across its portfolio, create a more deliberate and explicit brand architecture with a “Coach Lite” brand (like Nordstrom Rack) where shoppers can still have the signature Coach C’s on their arms without quite the same expectation of quality or of a luxury brand treatment
12. Either way, with an asset as valuable as the Coach brand, we suggest that Coach take care not to stretch the elasticity of its storied brand past the point of fracture.
13.
In the meantime, if you’re heading out to Barstow will you swing by and pick up our broken Coach bag?
The article sources:
http://www.brandculture.com/blog/2010/06/when-is-a-coach-bag-not-really-a-coach-bag-when-its-from-the-coach-factory-store/
