Coach turns to Disney for help

New York

COACH Inc chief executive officer Victor Luis has a strategy to make the brand more edgy and cool: a cheeky Mickey Mouse sticking out his tongue.

Facing an industry-wide slump, Coach is stamping the Walt Disney Co character on its leather goods, part of a plan to enliven the brand with pop-culture icons and create more limited-edition products. The idea is to give shoppers another reason to buy a new handbag - and coax them into paying full price for it.

Since the worldwide launch of the Disney handbags on June 17, several of the items have sold out online, including all four colours of the US$395 kiss-lock handbags that are designed in the shape of Mickey's ears. Large US$1,500 leather Mickey Mouse dolls and bean bags also have sold quickly.

"We've been very pleased with any time that we've engaged with fashion that's been in a much more limited, emotional, inspirational way," Mr Luis, 49, said in an interview. "You can certainly look forward to us having other collaborations going forward."

Coach is trying to restore its cachet after mounting competition, sluggish demand and heavy discounting led to two years of declining sales. The New York-based company has been remodelling stores, stepping up its marketing and releasing fresh products and designs from creative director Stuart Vevers, aiming to win back customers from Kate Spade & Co and Michael Kors Holdings Ltd.

Coach's earnings growth rebounded last quarter, and Mr Luis is cutting costs as part of his turnaround effort. The stock gained 22 per cent this year through Wednesday, outpacing the 1.5 per cent gain of the Standard & Poor's 500 Index. The shares rose as much as 1.4 per cent to US$40.43 in New York on Thursday.

Selling limited-edition items, such as the Disney products, helps ensure that they don't end up in the discount bin, said Michael Binetti, an analyst at UBS Group AG. They have more "scarcity value", he said. And the strategy is a better way to increase traffic than just offering coupons and promotions, he said.

Coach also is counting on American pop culture to make its brand more enticing to overseas buyers and foreign tourists, Mr Luis said. The company is celebrating its 75th anniversary this year and aims to play up its New York heritage with a new flagship store on Fifth Avenue.

"The idea of American dream and the idea of New York and the idea that anything is possible opens up the world of opportunity to international consumers," he said.

But it's hard to tell how much Mickey Mouse bags and other novelty products can lift the Coach brand. Though Vevers designed the Disney items to be edgy and sophisticated, they may have less appeal to domestic shoppers than to foreign tourists. And the strong US dollar has made products from US companies a tougher sell.

The ultimate problem for Coach is its heavy reliance on handbags and handbag-related products, which make up 80 per cent of its sales, said Christian Buss, an analyst at Credit Suisse Group AG. That category is still in a slump, he said.

"We are really concerned about slowing growth in the handbag category in North America," Mr Buss said. "If the category isn't growing and the category isn't healthy, it will be much more challenging for Coach to turn around its earnings."

Coach also gets 60 per cent of its sales from outlets, according to Mr Buss. That makes it hard to wean the company off discounting and burnish the brand.

Vevers's Coach 1941 line, named after the founding year of the brand, is an attempt to get back some of the company's glamour. It has helped Coach increase distribution from some department and speciality stores and get into retailers that it hasn't been in before. In turn, the company may be able to reduce its exposure to some lower-tier stores, Mr Luis said.

Coach's efforts to modernise the brand with new products and marketing are still in the early stages, he said.

"It's kind of endless - you can't say we're finished," he said. "There's still a tremendous amount to do." Bloomberg