Coach Pulls Out Of Department Stores To Save Its Brand

(Bloomberg) -- Coach is putting its money where its mouth is. 

The 75-year-old handbag maker said Tuesday it has pulled its purses and wallets out of 25 percent of the department-store locations that once sold its goods, or about 250 stores. The move comes just months after it fired a warning shot to department stores, whose runaway promotions were stinging the company's profits and deteriorating its reputation as a luxury brand. 

Warning signs that discount wars could spiral out of control have been building for years. Luxury brands became addicted to the jolt of sales that came from discounting, both at their own outlet locations and at retailers that sold their goods. It didn't take long for customers to see their products as ubiquitous and downmarket, nearly zapping all the brand equity these luxury retailers had built with consumers.

No longer: Smart brands including Coach and Ralph Lauren are finally taking steps to control their own destinies. By spending more money and time remodeling and re-imagining their own retail stores, as well as their websites and products, these companies are rebuilding their image and earning the right to charge more for their goods.

Bags and other products priced at more than $400 made up 40 percent of Coach's sales in the most recent quarter, up from 30 percent a year ago. The ability to charge higher prices is even more important when you consider traffic was essentially flat in the quarter due to a tourist-shopping decline hitting luxury retailers globally.

Coach's North American same-store-sales rose by 2 percent in the fourth quarter from the year before, marking the first time it posted sales growth at its own stores in more than three years. 

Coach is also finding new ways beyond discounting to lure shoppers to its outlet stores, using exclusive products and new partnerships -- a trend I wrote last week will come back to haunt retailers such as Kate Spade that have relied for too long on outlet growth. 

Coach's growing self-reliance should worry department stores. Brands aren't just talking about pulling back from them any longer. Now they're actually doing it -- and thriving.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Shelly Banjo in New York at sbanjo@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.