The accessories maker has ramped up its men's business, and it sees its growing stable of outlet stores boosting sales of men's items in particular.
Why do factory stores make sense for guys? Well, most American men like discounts and have fairly basic style requirements, says CEO Lew Frankfort.
"They're looking for well-made, functional product at a very compelling price," he told IBD in an interview last month.
"Most American men will carry a briefcase until it falls apart. A woman on the other hand, will have three to four (bags) that she will rotate between simultaneously and will likely retire her most popular ones within two years."
New Men's Stores
New York City-based Coach has opened five Coach Men's factory stores, launching all five in its fiscal quarter that ended Oct. 2. Overall, the company had 129 outlet stores in North America as of Jan. 1.
Frankfort says factory stores have been part of Coach's multichannel distribution model during his entire 30-plus years at the company. Initially, they just provided a way to "dispose of discontinued product profitably," he said.
But these days, the channel attracts a growing consumer group that shops mostly at discount stores, Frankfort said. Selling via the outlet channel also is consistent with Coach's positioning of itself as an "accessible luxury" brand.
Frankfort says the company maintains the same visual and housekeeping standards, staffing levels and return policies at its factory stores as at its full-price locations.
"The key differences are much lower levels of occupancy costs," he said, "and factory stores are by their nature much more productive than full-price stores."
While some analysts worry about outlet sales reducing Coach's gross margins, Frankfort dismisses these concerns. He says outlets' lower costs more than offset the lower gross margins, leading to higher operating margins — which are more important.
Some analysts also have argued that Coach's growing lineup of factory stores will dilute its brand. Frankfort doesn't have much patience for this view. He said: "Our track record speaks for itself. A well-managed factory channel can actually enhance the brand."
Other analysts have sounded upbeat about both factory stores and Coach Men's items, which range from messenger bags to belts and shoes.
Outlets Better Than Malls
Outlets are showing better prospects than the waning mall channel, Credit Suisse analysts said in a December report. They add that premium outlets are a more pleasant shopping experience than many traditional malls.
"When it comes to the oft-maligned outlet strategy, not only do we disagree with the view that it is brand dilutive, we think the premium outlet channel is one of the healthiest, fastest-growing, highest-return channels in all of retail," they wrote.
"Nike, Ralph Lauren and other top brands have further expanded into the outlet channel and have not had the brand dilution that many investors fear."
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