Inside the Collective
Connecting the dots across the consumer world.
Welcome to Inside The Collective, a newsletter that invites you into the brains, conversations and ideas of Allison Collins and Jessica Ramírez, friends and cofounders of The Consumer Collective. Here, we share weekly thoughts on consumer sentiment, news, retail, fashion, beauty, business, things we like, things we don’t — and why. We hope it helps you connect the dots across the consumer world, and that you’ll subscribe.
What we’re watching: Tariffs, inflation and freaked out consumers.
After months of companies bracing for impact, tariff negotiations are under way with China. We’re also watching to see what happens with Vietnam, where tons of apparel and footwear brands manufacture.
The latest inflation numbers for the U.S. are -2.3 percent year-over-year in April. Prices went down for gas, food, apparel, used cars and flights (Americans are flying less domestically; anecdotally, a recent flight home featured many unfilled middle seats). We expect to see inflation related to tariffs start to show up in the numbers this summer.
Walmart CEO Doug McMillon says the retailer will try to keep food prices as low as possible, but that tariffs will cause prices to rise. Walmart’s CFO told CNBC price hikes could start as soon as the end of the month. This will put even more pressure on low- and middle-income consumers.
Consumer sentiment is shaky and a lot of companies (Ford, Delta, Crocs and more) are pulling their guidance because the macro environment is shaky, too.
McDonald's executives said some low- and middle-income consumers appear to be skipping breakfast or eating it at home. (Jessica Ramírez)
We Like:
Baby seats in bathrooms throughout Tokyo. The one pictured here is in a major department store in Ginza, but they also had these in the public restrooms at the Tsukiji Fish Market. I don’t know that I’d use one of these if it were in a public bathroom in the U.S., but Japan is so clean that I don’t even have a baby and I was obsessed. Not only do these make it more convenient for parents to pee, they make it easier for them to keep shopping. (Allison Collins)
We Recommend Reading:
SportsVerse for sports, fashion & business.
Court Street Journal for local Brooklyn retail news.
About Dick’s Sporting Goods buying Foot Locker. We like this deal. (WSJ)
The Analysis: How Coach Got Cute
Businesses today need to focus on the value they bring consumers (this does not mean cheap junk!) Coach is doing that with its handbags (see below).
This week and next week, our analysis will be free. But after that, it will move behind the paywall. Please consider subscribing for future insights!
On a recent trip to Japan, I noticed a trend (well, I noticed about 40 trends, but we’ll dedicate an entire newsletter issue to the highlights in a few weeks): simple outfit, fancy bag.
Sitting on the subway, there was a visual parade: Fendi, Celine, Dior, Hermés and … Coach?
Coming from New York I could not quite believe my eyes. Women across Tokyo were proudly sporting their Coach Tabby bags with the same energy that women in New York bring with a Chanel classic flap. And there were a lot of them.
An afternoon at Coach Play
I decided to go into the Cat Street Coach Play store to see if I could understand the appeal. Set over several levels with a giant yellow Tabby bag replica outside, I was not expecting to be charmed after a 20,000-step day. But I was.
Coach looked cute.
The lower level featured the Coachtopia collection; a black-and-white patchwork leather crossbody caught my eye. Then, a series of adorable puffy bags. What are they for? Carrying small dogs in the winter? I have no clue, but they were so cute I didn’t care.
Upstairs, a denim patchwork case looked great; then I spotted the true gems. Situated in the “reloved” section next to the unmanned customization bar, were the 17 best bags in the store. All rejuvenated from their original states, they are the only ones of their kind in the world, with price tags to match. I was drawn in by a tiny, sequined sparkler (about $1,200) and an old bag with pink lacing and a top closure (about $600).
I ordered a coffee upstairs and texted my husband (before I saw the price tag, I liked the $1,200 bag for our three-year-old niece). And while that price didn’t work for my own vacation-gifts-for-toddlers vision, it has been working for Coach.
What the numbers say
In parent-company Tapestry’s most recent earnings report last week, executives said Coach posted strong growth in handbags, largely thanks to selling at higher price tags. Coach sales were up 13 percent in the most recent quarter, to nearly $1.3 billion, and to about $4.2 billion for the last reported nine months. The brand has been selling fewer products on promotion, executives said, and posted its highest gross margins ever (79 percent) in the quarter. Unlike many public companies, Tapestry raised its guidance.
With an assortment of more affordable, quality, fun offerings, Coach is not only getting more Gen Z and Millennial shoppers — it’s getting them to spend during a period where consumer sentiment is shaky at best. Tapestry CEO Joanne Crevoiserat said on the company’s earnings call that Coach increased year-one retention rates among Gen Z shoppers, indicating the “relationships are sticky.”
The Tabby ranges from about $300-$700, depending on the design, and the entire Coach handbag assortment (including non-leather items) ranges from $70 to $10,000 online, though there are only a few super high-end options. The bag shapes rival much more expensive designer counterparts (Gucci Jackie, $3,800 / Loewe Amazona, $3,550, etc). The special straps and bag charms are timely and drive units per transaction.
Coach’s Tabby, in particular, has helped the brand pick up “new and younger consumers,” Crevoiserat told Wall Street in early May. “Twenty years ago, Coach would play in European luxury. Traditional European luxury was 2x our price points,” said Coach CEO Todd Kahn. “Today, they’re 10x. That just gives me more and more confidence globally that our value proposition cuts through across the world.”
In Tokyo, the Tabby was by far the most worn Coach bag. In New York, people are wearing the Brooklyn bag. Lyst, which issues a quarterly ranking of fashion’s hottest brands, bumped Coach up to No. 4 in the latest rankings — higher than Prada, The Row, Skims and other buzzy brands. Only Loewe, Miu Miu and Saint Laurent beat Coach, which started zooming up the list over the holiday period.
Coach in the context
“The compelling value globally is really resonating,” Kahn told Wall Street. “I don’t like the idea of somebody having to save three or four months' salary to buy a handbag. That has never been Coach’s DNA. We want to make people feel confident. We want them to feel good about their purchase and buy something of true value that represents value.”
Kahn hit the nail on the head.
When I was young, Coach was my family’s Chanel. Not only because Chanel was firmly off the middle-class suburban radar at the time, but because of the quality. My mom and my aunts were constantly going on about how Coach bags would last a lifetime. Japan’s vintage scene firmly underscored their point. Old leather Coach bags were everywhere, in great condition, for $20 to $150.
Today, people are wading through a global geopolitical mess. In the U.S., wage growth has slowed. Tariff impacts remain to be seen. Consumer sentiment is in the toilet. For consumer-oriented businesses, the antidote to stagnation is providing value. There are a lot of brands missing the mark there, through overly-inflated prices, subpar quality or lack of brand differentiation. But the ones that get the formula right — good quality for the price with items that at least have the potential to last — resonate with today’s shoppers. And heritage brands, including Coach, are well positioned to weather this market.
The long, slow playbook
Coach has been turning around for a decade. They hired Stuart Vevers all the way back in 2013, and started making better, more timely products with fewer logos. First came the Rogue, then the Dinky. They created Rexy (the dinosaur) and hired Selena Gomez to get in front of younger consumers.
Operationally, there were improvements: a revised distribution strategy led to fewer discounts. Coach localized the product assortment and shopping experiences. The brand pulled out of off-price to focus on direct sales, leading to more full-price transactions and elevated brand authority. Coach still has an outlet business, but the experience echoes the full-price stores and helps build the shopper base.
The stars aligned, and Coach took advantage of the rise in mid-priced handbags with interesting shapes to launch new, trendy pieces. Now, the company is hoping the playbook translates to other categories, including shoes. (Allison Collins)
Inside The Collective is a (mostly) weekly newsletter from The Consumer Collective, an advisory firm based in Brooklyn, N.Y. For more information or business inquiries, please send us a note at info@theconsumercollective.co.