We Want Fewer Ideas, Richer Stories: Coach Brand CEO

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00:00The CEO of its parent company, Tapestry, told us earlier this month that the company is now

00:04going to try to apply the coach playbook to Kate Spade as part of an overall strategy to boost

00:11growth. Now, I had a chance to sit down with the CEO of the coach brand. His name is Todd Kahn. He's

00:16responsible for a lot of the coach bags and coach shoes that you've seen on the streets of America

00:21over the last few months and years. Here's what he had to say.

00:25We have noticed that Gen Z are spending a little bit more. They're also coming in more frequently.

00:34So I'll give you one quick example. We have beautiful bags. We also do this great job with

00:39bag charms. So often that second purchase might be a bag charm or we recently launched two incredibly

00:46powerful sneakers, a Soho and a Highline, and we're getting a lot of traction, all pun intended, on

00:52both those sneakers. Well, talk about those bag charms. I mean, so when someone comes in to buy

00:56the bag or they buy it online, are they buying the bag charms at the same time or is the idea that

01:01you get them with the bag and then a couple weeks later they decide, I need some accoutrement to put

01:06on it? Yeah, it's super interesting because I keep seeing the success of bag charms, but our UPT

01:12didn't materially change our units per transaction. And so when I talk to our store people, because that's

01:18where you gain so much insight, what they said is that the Gen Z customer has this bag and she knows

01:26what bag she wants. She might have been coveting it for some period of time. She buys the bag. She

01:31sees the charm. That's a second trip. And we love being able to interact with her in our stores. We're

01:3890% direct to consumer and getting that second bite at the apple, even though the cherry charm is

01:44probably our number one charm. How much pricing power do you have? Do you ever sort of look at

01:48some of the popularity of some of your items and think, you know, we can sell this for maybe $300

01:53more than what we're currently selling it for? We're very, very cautious about that. Again, I don't

01:59want us to be off-putting. One of the things we know is there will be 25 million women who turn 18

02:06this year and for the next 10 years in the markets we are already transacting. So this isn't going into

02:13different markets where it are or not. I want to be their first back. I want them to come to coach

02:19and run us and stay with us for a long period of time. And it's not just maximizing what short-term

02:27price. We're building something really sustainable for a long period of time.

02:33How do you protect those margins, particularly at a time when tariffs are higher, significantly higher

02:39than where they were a year ago? And even in the absence of tariffs, there are a lot of input costs,

02:45I would think, that are also significantly higher for you than what they would have been just a few

02:48years ago, too. Yeah. Well, one thing is we have a manufacturing mindset. So we started as manufacturers.

02:58We never gave up that DNA. Our relationships with our service providers go back 20, 30 years. At one

03:04period of time, I oversaw all of our sourcing. So I know these people really well. So there's a

03:09partnership that we have together with them. You can't put all the costs on them. It's a partnership.

03:16We have taken price over time, but very systemically over the last five years. Sometimes it's about

03:23changing your assortment. The biggest issue you have in a fashion business is over inventory or

03:30over assortment. When you talk about fewer ideas that are richer, you reduce your markdown liability.

03:38So if you reduce your markdown liability, you actually don't have to just take top price.

03:43You take an overall higher gross margin over time. So finding that right blend is really important.

03:50You're seeing us deliver that with the increase over the last five years of our gross margin.

03:54In the past, discounting was a big strategy of Coach. Is it still?

03:59It's far less. We love value change. We think our bags at the $200 to $500 price point have incredible value.

04:09We don't have to scream discounting on top of that. When you see a Tabby bag, when you see a Brooklyn

04:15bag, $395, the richness of the leather, you see the value in it. You don't have to say,

04:21oh, and now buy it for 20% off. That message diminishes your value as a brand.

04:30If the worst thing a brand can do is have the perception that you're always on sale. It

04:35diminishes desirability. And so we focus on fewer ideas, richer stories. That's why we have fashion

04:43shows. That's why we, that's part of what fashion considers R&D. They see that it creates a

04:49desirability for your brand and your product. It's late September, so you have to be thinking

04:54about the holiday season, right? I mean, what do we, what does Coach look like this holiday season?

05:00Do you sort of go into a Black Friday with a discount mindset in order to sort of compete with

05:06all the other folks that are going to be putting their products on sale?

05:08The answer is generally no. So we'll have some, maybe a doorbuster idea in some channels. They're

05:16very smaller ideas than historically. What we want to talk about is this is the holiday. And I think

05:23if the consumer is more choiceful, as we've seen, they want the best bag. They want the Tabby bag.

05:29They want the Brooklyn bag. Tabby, a desirable bag at $3.95 or $4.95, because the brand is so

05:38compelling right now, is a lot more compelling gift to see under the tree than something somebody

05:44bought for 40% off for a lesser concept. And just real quickly, I mean, you've been talking a lot

05:50about bags and obviously that is the hallmark of Coach. But if you walk into a Coach store or go on the

05:54website, you see shoes, you see jackets, you see sunglasses, you see a lot of other products out

05:59there. Selling fashion that maybe isn't sort of in the bag space, is that harder to do for

06:05something like a shoe or sunglasses or a jacket as relative to a handbag? Well, from a business

06:11perspective, we love handbags. You don't have seasonality. You don't have the size issues that

06:16you have. That is our core product. And we can win and meet all of our investors' expectations for the

06:23next three and five years winning in that category. That said, we are an 80-year-old brand. We have a

06:30creative director. We have fashion shows. We have the credibility to win in some of those other

06:37categories. Our next most important category is footwear, specifically sneakers. We know Gen Z, 50% of their closet

06:46is sneakers. So if you want to win with Gen Z, you have to win with sneakers. So we're doing that. You'll see us

06:52expand slowly and carefully into ideas that we've talked about for a long time. We're the house of leather. So

06:58I think our leather jackets are the best in the world, period, bar none. So you'll see us continue to do that.

07:07But we always stay very focused on our core category.

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