Coach Leatherware

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Coach Leatherware

516 West 34th Street
New York, New York 10001
U.S.A.
(212) 594-1850
Fax: (212) 629-2602

Wholly Owned Subsidiary of the Sara Lee Corporation
Incorporated: 1941
Employees: 2,000
Sales: $150 million
SICs: 3171 Women’s Handbags & Purses; 3172 Personal Leather Goods Nee; 2387 Apparel Belts

Coach Leatherware is a prestige marketer of handbags, briefcases, luggage, and accessories. The company made its reputation selling sturdy leather purses in unchanging, traditional, classic styles. In the mid-1980s, the couple who had built the business and its solid reputation sold Coach to a much larger conglomerate, the Sara Lee Corporation, which set about expanding the market and profits of the company. Throughout the late 1980s and early 1990s, Coach steadily increased the number of products it made, as well as the number of outlets distributing them around the world, and its revenues grew exponentially.

Coach was founded in 1941 as a family-run workshop based in a loft on the edge of Manhattan’s garment district. The company started with just six leather workers who made small leather goods, primarily wallets and billfolds, by hand. In 1946, Miles Cahn, a lifelong New Yorker, came to work for the company. By 1950, he was running the factory for its owners. The company’s employees, members of Local 1 of the Pocketbook and Novelty Workers Union, continued to manufacture billfolds throughout the 1950s, producing small profits for the small concern.

By 1960, Cahn had taken notice of the distinctive properties of the leather used to make baseball gloves. With wear and abrasion, the leather in a glove became soft and supple. Following this model, Cahn devised a way of processing leather to make it strong, soft, flexible, and deep-toned in color, as it absorbed dye well. At his wife Lillian’s suggestion, a number of women’s handbags were designed to supplement the factory’s low-margin wallet production. The purses, given the brand name Coach, were made of sturdy cowhide, in which the grain of the leather could still be seen, instead of the thin leather pasted over cardboard that was used for most women’s handbags at the time. This innovation marked the company’s entry into the field of classic, long-lasting, luxury women’s handbags that Coach would come to define.

In 1961, after more than a decade of running the leather workshop, the Cahns borrowed money to buy out the factory’s owners and take possession of Coach. Throughout the next decades, Coach produced solid handbags in an assortment of basic styles. For the most part, the company steered clear of fast-moving trends, opting instead for traditional, conservative elegance and quality. Gradually, high-priced Coach products developed a reputation and a certain cachet. In the late 1960s, as fashion changed radically, Coach deviated somewhat from its traditional product line, introducing additional models that were designed to complement trendier styles in clothing. In 1969, the company began to market items such as a structured bucket bag, which was produced for only one season, and a fringe “shimmy” bag.

By the early 1980s, the Coach plant occupied four floors of a building on West 34th Street. The company was manufacturing purses, briefcases, billfolds, and belts, using skilled laborers, many of whom had emigrated from Argentina. Paying their workers wages that were a dollar or more higher than rates in other factories, the Cahns enjoyed good labor relations with their employees, which allowed them to produce a steady flow of Coach products.

In the late 1970s and early 1980s, Coach took two steps to diversify its channels of distribution. Under a new vice-president for special products, the company began a mail-order business, and also began to open its own specialty stores, to sell Coach products outside a department store setting. Sales of Coach products grew steadily throughout this period, until demand began to out-strip supply. Department stores were selling all the Coach bags that the company could produce, and by the early 1980s it had become necessary to ration the products to various vendors. Despite the potential for vast expansion of their market share, the Cahns continued to run their business in the same way that they always had. They had little desire to move their factory out of its urban Manhattan setting, to a place where rents and taxes might be lower, space more readily available, and wages cheaper. In addition, they did not want to change their methods of production so that goods could be made more quickly, at the expense of quality or workmanship. Instead, they continued to run their business on a personal level, maintaining first-name relationships with many of their workers, and inviting department store buyers from New York to tour their factory, to observe the craftsmanship that went into each Coach bag.

In 1983, the Cahns purchased a 300-acre dairy farm in Vermont, as a weekend diversion from their business in New York. Although the property was intended to provide a vacation home and retirement destination, the Cahns began to raise goats and market goat cheese under the brand name “Coach Farms” shortly after buying the farm. By 1985, they were commuting twice a week between Vermont and New York. In the summer of that year, after determining that none of their three children had any desire to take over the family leatherware business, the Cahns decided to sell Coach.

In July of 1985, they cemented an agreement with the Sara Lee Corporation, which also sold foodstuffs and hosiery. In return for a sum reported to be around $30 million, the conglomerate took control of the company’s factory, its six boutiques, and its flagship store on Madison Avenue in New York. Sara Lee promised that it would continue to operate Coach in the way in which it had always been run. At the time of the sale, the Cahns split $1 million of the proceeds with 200 longtime employees, on the basis of their seniority.

Under its new owners, the company prepared for a rapid expansion. The basic strategy for this expansion was to add to the number of products that bore the Coach name, and to increase the number of customers buying these goods. Accordingly, the company added several new styles of handbag in an updated classics line, and also began a major expansion of its channels of distribution. In early 1986, new boutiques were opened in Macy’s stores in New York and San Francisco, and in two Bamberger’s stores. Additional Coach outlets were under construction in stores in Denver and Seattle, and agreements had been reached to open similar boutiques within other major department stores later in the year. And Coach opened its own stores in malls in New York, New Jersey, Texas, and California. By November, the company was operating 12 stores, along with nearly 50 boutiques within larger department stores. The company projected that the expansion would boost sales for 1986 to $25 million, a gain of 45 percent over the previous year.

A significant part of sales was expected to come from the newly-introduced Coach Lightweights line of products, which featured lighter weight leather and bags with new shapes. This line was intended to broaden the company’s customer base by appealing to women who lived in the South and West, where warmer weather made lightweight handbags more desirable. The Lightweight line featured handbags in smaller sizes, for ease of access, and lighter spring colors, such as taupe, light brown, and navy. This line quickly came to comprise 15 percent of the company’s overall sales.

To keep up with growing demand for Coach products, the company doubled its work force, leased additional space for factory operations, and expanded the work week to six days. Despite these measures, however, by the fall of 1987, Coach was again unable to meet all orders for its goods, and the company began to seek additional room for expansion. In addition, to better control the circumstances under which its products were sold, Coach slashed the number of department stores retailing its goods by 50 percent. Despite continued strong demand, the company did not increase its prices to keep pace with a sharp rise in the cost of leather. By the end of 1987, Coach had nearly doubled its revenues, despite its reduction of retailers and the increase in the price of leather.

In December of 1987, Coach opened a new flagship store on Madison Avenue, in New York. The two-story store, with a marble and mahogany interior, featured an atrium, and a gallery of leather art, as well as the full range of Coach products. The company expected to sell $5 million worth of handbags in the store’s first year.

Coach solved its production problem by opening a plant near Miami, Florida, where its Lightweight collection was manufactured, in 1988. The plant’s production supplied 22 free-standing stores and 300 different retailers, making Coach products available in more than 1,000 locations. Although the traditional line and the Lightweights products were emphasized, Coach further expanded its offerings to include more business items for men and women. Among the new products were briefcases, wallets, and diaries.

Coach’s first non-leather product was introduced in 1988. Silk scarves, sold in four designs that related to leather goods, were planned to complement the other Coach products. Each of the 36-inch silk squares was manufactured in Italy, and priced at $60. Although the company estimated that first year sales of this line, which also grew to include men’s ties and suspenders, would reach $2 million, the products were eventually discontinued, after it was determined that their equestrian designs, featuring bridles and stirrups, made them look too much like products from a Coach competitor, Hermes.

Coach took its first steps overseas in 1988. The company had long noted that many of the customers in its New York store were foreign tourists, and Coach executives believed that this indicated that demand abroad justified international expansion. The company began by opening Coach boutiques in England and Japan, setting up one outlet in Harrod’s department store in London, and five in Mitsukoshi stores in Tokyo and other Japanese locations. These stores carried a full line of Coach products, and mimicked the look of Coach stores in the United States, with mahogany and brass fixtures and marble floors. The company planned to train foreign sales staff and hoped to take advantage of the low international value of the dollar to boost sales through lower prices.

As Coach continued its international push in 1989, opening a free-standing store on Sloane Street in London, company sales had quintupled to $100 million in a period of four years and the number of company stores had grown to 40. Coach established its first store in Continental Europe, with a 500-square-foot outlet in Stuttgart, Germany. By 1990, the Coach push to enter international markets had created 19 in-store shops in Japanese Mitsukoshi department stores, with six more slated to open in the next six months. Coach solidified its position in the Japanese market by renewing its agreement with Mitsukoshi, making it the exclusive distributor of Coach products in Japan. In addition, Coach joined with another company to open a boutique in a Singapore shopping area, and Coach opened a store in Taipei, Taiwan. With international sales making up ten percent of the company’s revenues, Coach saw the Pacific basin as a key area for further growth.

The company’s Far East push was driven by the popularity of Coach goods with Asian tourists in New York, and also by the belief that the company’s understated style, lacking in logos or obvious status symbols, was beginning to supplant the vogue for flashy designer goods. To support sales of its products in the Far East, Coach began an advertising campaign to stress the ways in which Coach expressed the American spirit.

Coach’s expansion overseas was coupled with domestic expansion, and production again was increased. In addition to its new facility in Florida, the company moved its New York area operations from Manhattan to Carlstadt, New Jersey.

Coach’s success in expanding its brand awareness had caused other manufactures to imitate the company’s trademark styles and shapes in their own products. To prevent this infringement of the company’s unique designs, Coach sued a number of other manufacturers to stop them from imitating Coach styles. In 1990, the company won a suit in federal court against several other companies, including Ann Taylor and Laura Leather Goods. The ruling awarded the company damages for trade dress infringement.

Coach sales continued to grow in the early 1990s. By May 1991, revenues had increased by more than a fifth over the previous year, and annual sales had reached $150 million. The company continued to broaden its product line, while retaining the qualities identified with its prestigious brand name. Overall, Coach planned a dramatic shift in its identity in the 1990s. “We’re going for positioning as Coach the brand, as opposed to Coach the leather company,” the company’s president told Grain’s New York Business. “I can’t see a limit to Coach’s growth in the foreseeable future.”

To bolster that growth, Coach hired a designer to lead a 16-person product development department, to create new objects that could be marketed under the Coach name. In its women’s line, the company sought to introduce products in more fashionable colors, without watering down the Coach reputation. In this way, the company hoped to overcome the built-in drawback to high quality and timeless styling, which was that customers rarely needed to replace a product. It launched a line of desk accessories, and an all-leather travel collection was introduced.

In addition, the company began to sell a line of goods for men that included suspenders and socks. This fast-moving category had grown to provide 40 percent of the company’s sales. Coach capped off its recent growth in products for men by opening two Coach for Business stores, which were devoted specifically to products for men, on Madison Avenue in Manhattan and in Boston. With these stores, the company hoped to shift its image, repositioning itself as a full-range accessory maker, rather than merely a handbag manufacturer.

Coach announced that it would move more aggressively into the leather accessories market, and also try to market its products to younger customers in 1991. To do so, the company hired a new, young advertising agency, which designed a campaign featuring descendants of famous Americans using Coach products, with the theme, “An American Legacy.”

By early 1992, Coach had expanded its number of stores worldwide to 53, and had enhanced its line of men’s and women’s socks, to further exploit the appeal of the Coach brand name. Later that year, the company added gift items, including picture frames and belts. In the fall, Coach increased the scope of its handbag line, introducing the Sheridan collection, which featured textured, treated leather that would not burnish like other Coach items but was also more scratch resistant; and the Camden collection, which was styled with brass accents.

Coach stepped up its catalogue sales effort in the fall of 1992, mailing 10 million mail-order brochures to former customers and likely prospects. The company’s catalogue operations, though small, were the most profitable of its branches. Coach turned to its mail-order operations to test market its latest innovation in November 1992, when the company began to offer leather outerwear. Providing five styles for men and women, made of soft, water-proof leather, the outerwear was joined by fabric luggage, another departure from Coach tradition, as the company tried to push the boundaries of its identity even further.

As Coach broadened its product offerings, it also broadened the variety of its handbags. Coach moved away from dark, staid colors to brightly-hued bags, introducing the Manhattan collection in the spring of 1993. To keep up with demand for this wide variety of new products, Coach expanded its manufacturing activities to Puerto Rico.

As Coach moved into the mid-1990s, the company appeared poised to continue its rapid growth. Supported by the resources of a large conglomerate as its corporate parent, and holding a trade name with a strong reputation for prestige and quality, the company was well-positioned to make good on its assets, provided that its push to expand and diversify did not dilute the value of the Coach identity, built by a line of traditional, classic, sturdy goods.