New York—The decision by Coach Inc. today to close 70 stores in North America reflects the urgency of the need for the upscale leather retailer to stem market share loss and improve its top line.
In its last quarter, Coach revealed same-store-sales had fallen 21% in North America, the group’s fourth straight quarterly decline.
Outlines 5-year Plan
Speaking to investors and analysts Thursday, Coach said it expects North American comparable sales to be down by “a high teen percentage” in its new fiscal year, and that it will return to growth two years after that.
The retailer also outlined a five-year plan that it said would involve the closure of 70 of its 350 North American full-service stores in the first half of the year, beginning in two weeks.
Coach plans to shift its focus to better stores and flagships in its 12 best markets, which collectively generate half of its North American sales. The company will also scale back its factory outlet business, with five fewer stores.
UBS analyst Michael Binetti believes the five-year plan reflects an urgent time for the retailer to pull forward painful store closures, investment spending, and overhead cuts.
“The plan also included a thoughtful road map to turning Coach’s brand image, improving margins and returning the ailing U.S. business to growth. While we seldom comment on style—new product, store design, & marketing will clearly signal a change to the consumer. We credit Coach’s urgency to eliminate unproductive stores, reduce discounting, and realign its cost structure.”
Nonetheless, Binetti says execution will be tough, and that competition isn’t letting up. He has identified three major risks to Coach’s plan: The difficulty of withdrawing coupons; U.S. market share that has yet to stabilize; and category growth assumptions that seem aggressive.
“Past attempts to reduce coupons show that value shoppers are quick to veto a shift to full price,” he noted.
“Coach had to lay out revenue targets with U.S. market share still falling, and with peer brands (Michael Kors/ Kate Spade/Tory Burch) in the early stages of square-footage roll-out that could exacerbate Coach U.S. trends further.
“Finally, Coach’s math assumes the North America premium accessories category will continue its +HSD growth for several more years (Coach forecasts assume +9% NA category growth through FY19).”
Coach expects to incur pre-tax charges of around $250 million to $300 million as a result of the restructuring. These will be related to inventory, organizational efficiency charges, and fleet costs (primarily North America) including impairment, accelerated depreciation and lease terminations.
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