After a String of Acquisitions, Why Is Coach Renaming the Whole Group?

The renaming sums up three years of Coach chasing growth beyond a single brand, and formally declares its turn into a multi-brand group — but none of this will be easy, and not only because of a new arms race.

Coach, long known for its leather goods, is no longer content with a single-brand business. Its new ambition is to become "America's first modern luxury group." After a run of acquisitions and integrations, the 76-year-old Coach has taken a more direct step toward changing how the public sees it: a name change.

On October 11, the Coach Group announced that the group would be renamed Tapestry, Inc., and that its New York Stock Exchange ticker would change from COH to TPR.

The change won't take effect until the last day of this month, but the new website www.tapestry.com is already live. Its homepage sets the three brands — Coach, Kate Spade and Stuart Weitzman — side by side, under a tagline in large type: Individual Expression, Collective Beauty.

The brand consultancy Carbone Smolan Agency handled the renaming and the rest of the rebrand. It started with a list of more than a thousand names, cut it down to 10, then checked each one for legal viability and for what the word carried culturally in key markets around the world.

The winner was Tapestry — a word most people probably won't remember right away.

Tapestry literally means a woven picture. In an interview with The New York Times, Coach, Inc. CEO Victor Luis explained the new name in fairly poetic terms: "It's a fitting metaphor for our values — many distinct colors woven into one picture."

In the press release sent to Chinese media, Luis put it more plainly. Coach, he said, is at a pivotal moment of corporate reinvention, "moving from a single-brand specialty retailer to a multi-brand company with deep emotional connections that people aspire to." Those brands need "their own distinct positioning, to meet different consumers' fashion sensibilities and emotional needs," while sharing "common values of optimism, inclusiveness and innovation." The new name therefore had to "reflect those values now and in the future, and capture the cultural diversity of our team and our brands."

In other words, the renaming sums up the three years Coach has spent chasing growth beyond a single brand, and formally declares its turn into a multi-brand group. In 2015, Coach bought the footwear brand Stuart Weitzman for $574 million. This May, it bought its rival Kate Spade for $2.4 billion.

Coach isn't the only company with that ambition. This July, Michael Kors bought Jimmy Choo for $1.2 billion (some outlets reported that Coach joined the bidding too). Michael Kors CEO John Idol told reporters at the time: "Our strategy is to build a luxury group focused on international fashion brands, and the Jimmy Choo acquisition is only the beginning."

Why is it so hard for America to produce a luxury group?

The game played among luxury groups had nothing to do with America to begin with.

First, "luxury" today isn't quite the same thing as "luxury" before the 1990s. The older kind is what Wall Street Journal columnist Christina Binkley described in her book Winner Takes All: "The companies recognized as luxury businesses were, for the most part, of European descent. Most of them were traditional workshops a century or more old. Once people realized a founder's name could be turned into a brand and mined for more commercial potential, today's luxury industry took shape."

The newer kind is a sprawling conglomerate assembled at the level of capital to capture economies of scale — the same trend nearly every industry shows: merge to diversify, band together to gain leverage in the market.

Americans are practiced hands at mergers and acquisitions in other industries, which makes their record in luxury so striking.

American business history holds several attempts to copy the European fashion houses and build a homegrown luxury group. All of them failed. In 2000, a US company called Pegasus Apparel used a private-equity fund to buy up, one after another, Miguel Adrover, Daryl K, Pamela Dennis, Judith Leiber and Angelea Amiri. A year later the brands were sold off one by one, and Pegasus Apparel was renamed Leiber Group.

In 2012, Liz Claiborne — the parent company of Juicy Couture, Lucky Brand and Kate Spade — renamed itself "Fifth & Pacific," hoping to signal that it was becoming a lifestyle-brand group. By the end of 2013 it had sold both Juicy Couture and Lucky Brand, and in 2014 it changed its name again, to Kate Spade & Co.

Judging by Europe's experience, the reason is that founding a luxury group and taking it global originally demanded at least the following:

• An industry foundation: an "official" authority like Louis XVI and his finance minister, Jean-Baptiste Colbert, imposing a strict, top-down system — setting the fashion-week calendar, writing rules and policies that rewarded high-end fashion;
• A pedigree: long-established workshops with craft and tradition refined enough to build on;
• Money: financial groups rich enough to steer and fund the whole thing;
• Demand: a large population of aristocrats, upper-class or wealthy consumers to sustain it, and the ability to keep finding such a group;
• Products beyond ready-to-wear: high-margin accessories or beauty lines to guarantee steady profit and growth;
• And at the core, design: a reasonably mature system for training talent and encouraging invention, so the supply of ideas never runs dry — the LVMH Prize, set up by the LVMH Group, is one example.

More important still, a luxury group has to know how to turn those ideas into a high-margin business. "You need a healthy sense of risk, and a willingness to invest in decisions that look quite risky. It takes an environment where people are free to experiment, and it takes enough money behind them," Mindy Meissen, curator at FashionREDEF, told the fashion site Fashionista in an interview this July.

American commercial soil is entirely different. When Europe set about building a luxury industry, the United States did not yet exist. America has a craft tradition of its own, but it was never as orderly or as esteemed as Europe's, and it was soon battered by waves of urbanization and standardization. By the time a wealthy class had formed, with an appetite for fashion as both an investment in taste and a display of status, the European houses had already moved into the American market and taken the opening.

America and Europe also differ in business temperament, in two ways that matter. As New York Times columnist Vanessa Friedman has pointed out, the American entrepreneurial instinct usually runs stronger than the instinct to continue and protect a tradition. So even a conglomerate with the resources to gather scattered brands into a group would still have to take on more risk and spend more money building stories and recognition for them. In management, some listed European groups are still run by families and are readier to think in decades, while American investors tend to be short-sighted.

Beyond that, America has long had more room to grow in the mass market, and its real advantage lay in a mature chain department-store system. The fashion columnist Ye Qizheng, in an article on this question, wrote that "American business models have always worshipped the '3Ms' — Mass Marketing, Mass Production and Mass Sales. In the end it all comes down to volume; as for how that gets presented to consumers, brands of course never use the word 'Mass.'"

Seen another way, that also explains why affordable-luxury brands such as Coach and Michael Kors emerged in America first. Through marketing and store management they built an image close to the luxury experience, and through large-scale production and direct control of their retail channels they held costs down and margins up. By Ye Qizheng's figures, several "affordable luxury" brands run gross margins around 60%, with Coach at the high end, up to 70%. Other brands at mass-market prices come in lower: Nike at 45%, Gap at only 35%.

But it is a well-known problem that since the 2014 peak, the affordable-luxury story at Coach and Michael Kors has been getting harder to tell. The brands were overexposed, their design couldn't match the true luxury houses, and their supply chains couldn't keep up with fast fashion. More important, the department-store system that had preached the affordable-luxury idea to tens of millions of people was itself in trouble — battered by new technology and digitization, by rents that kept climbing, and by its own aging format.

What changed the rules of the game?

It is an old line that a crisis carries an opening with it. Amid all this change, what Pegasus Apparel and Liz Claiborne failed to do in 2000 and 2012 has started to look possible.

The deepest shift is in what consumers think, and it has shaken the definition of "luxury" itself. Mindy Meissen argues that "the brands people see as outstanding and inspiring are no longer just the ones at the top of the price pyramid — even if those brands can fetch high prices on the resale market. The context around the word 'luxury' has changed, and American companies like Supreme are now counted in it."

The European houses that once looked down from above are taking hits too; "winner takes all" doesn't work as well as it did. Sales channels, information channels, pricing strategy and the flow of information have all changed. Market trends move faster and are harder to predict. As demand takes on the rhythm of fast fashion, design innovation and turning ideas into revenue have become more urgent — and far more punishing. Creative directors cycle among a handful of top brands like figures on a revolving lantern, while managers have to make more big calls in less time.

At the BoF forum held during Shanghai Fashion Week on October 11, Stefan Larsson, who left the CEO job at the Ralph Lauren group in May, said: "The barrier to entering the fashion industry has never been lower, and there are more and more voices in the market, which is bringing attention to many niche segments and small brands. Conversely, if big companies can't find their entrepreneurial spirit again, if they won't look at what is actually happening in the market and make themselves more agile, they are putting themselves in a fairly dangerous position."

Can Coach repeat what the European houses did?

In a market changing this fast, Coach has decided to walk the fashion industry's old road.

During the era when the big groups turned themselves into capital, LVMH under Bernard Arnault and Kering under François-Henri Pinault finished their first round of the acquisition race decades ago, taking the very best brands. LVMH bought Dior, Louis Vuitton, Céline and Givenchy; Kering bought Gucci, Yves Saint Laurent, Alexander McQueen and Balenciaga.

Some of what Coach has done in its own transformation plainly borrows from the European houses: the renewed stress on craft, aesthetics and New York tradition, the attention to accessories, and the renaming itself. In fact it was only in 2013 that Kering went through the fifth renaming in its history, from "PPR" to "Kering," to mark its shift from "retail and luxury" toward "luxury and sport and lifestyle."

But Coach has no intention of repeating that glory, and probably couldn't. It plans instead to try a model the American market has never tested: gather a set of distinctive brands that aren't top-tier but are still mid-to-high-end, give them one aesthetic principle, and keep the core ideas of the affordable-luxury era — value, quality and accessibility — while telling the story a new way, one closer to luxury and closer to young people in cities.

As we noted in an earlier story, America does have a few companies that own several brands, the best known being PVH, owner of Tommy Hilfiger and Calvin Klein. But those tend to be seen as fashion brands rather than luxury ones. What guides them is less a shared aesthetic principle than a rationalized supply chain.

The name Tapestry is where this new thinking is concentrated. The word calls up European history, or the old decoration of a palace; it stresses the hand and the craft. It also stresses taking in rather than shutting out.

"I'm not in this seat because I'm somebody's son," Coach, Inc. CEO Victor Luis told The New York Times. "We also don't believe design and production have to be confined to any one country." "Tapestry means embracing every kind of difference — whatever the race, gender, sexual orientation or faith, whatever the category, channel or geography."

That was aimed not only at consumers but at acquisition targets. Coach doesn't just mean to extend its product lines; it wants a richer set of brands under its roof. Luis kept returning to "an $80 billion global market in high-end handbags and accessories, footwear and outerwear, deeply attractive and still growing," and said that although all its brands are based in the US today, it plans to pursue acquisitions in Europe and Asia.

What problems could a multi-brand group run into?

The biggest thing Coach has to watch is that the barrier to assembling fashion brands into a group has come down too.

On acquisitions alone, Coach is walking into a much more crowded market. To reach the high end it has to contend not only with bolt-on deals from conglomerates like LVMH and Kering, but with ravenous private-equity funds — Carlyle Group, for instance, which bought Moncler in 2008, bought the Italian luxury brand known for its "dirty sneakers," Golden Goose Deluxe Brand, this February, and put money into Supreme four days ago. It even has to think about deep-pocketed Chinese companies looking to remake themselves: Shandong Ruyi Group bought SMCP, the parent of Maje and Sandro, last October, and has just listed it in Paris; Ellassay, in a little over a year since its A-share listing, has spent nearly 800 million yuan buying three overseas brands in a row, and in August added the American designer label Vivienne Tam.

A multi-brand portfolio hedges risk, but it also asks more of the core brand. Luca Solca, head of luxury goods at Exane BNP Paribas, told The Business of Fashion in a 2015 interview: "To build a conglomerate on that scale, you must have a highly profitable, healthy, strongly growing company at the center of the group. Every luxury giant has one such superstar brand — Gucci for Kering, Louis Vuitton for LVMH, Cartier for Richemont."

"Building a conglomerate by buying weak brands is not a wise move. If your core business isn't strong enough, it will only scatter your attention, and it won't add value to the deals either."

For now the new group's core brand is still Coach. Three years after it announced its transformation strategy, Coach went through a stretch of adjustment, and sales began recovering in April 2016. Fiscal 2016 sales reached $4.492 billion, up 9% at constant exchange rates.

In UBS's 2016 annual survey of handbag buyers, opinion of Coach had improved, with 72% rating it positively. Prices paid have risen as well: in North America, 55% of the handbags sold went for more than $400, against just 30% two years earlier.

On the other hand, Coach still has plenty to fix. Most of the brand's revenue still comes from outlet stores, and it still leans on handbags, a category whose growth is slowing.

In fiscal 2017 sales slipped, to $4.49 billion. Net profit rose 28.2%, but largely because Coach cut back sharply on promotions and pulled out of several hundred department-store points of sale in North America.

And that is before the questions that come with being a multi-brand group: how different brands can work together, whether each brand has troubles of its own and how those get solved, and whether consumers will take to Tapestry as a new identity any time soon.

Judging by the reaction on social media, people have not adjusted to the 76-year-old brand changing its name. A Reuters story quoted one Twitter user's complaint: "Coach just went and named itself after a Carole King pop album! That's an awful name, completely wrong for a leather-goods maker!"

In his New York Times interview, Victor Luis said he owns that album himself, but doesn't think the overlap matters much, because "young people probably haven't heard of Carole King."

After the announcement, as of press time, the Coach Group's share price had fallen 2.67%.

Cover image: COACH, VOGUE