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COACH vs. COACH Outlet Factory Store: One Brand, Two Separate Businesses

n.b. On April 23, 2012 we updated certain outdated statistics and dead links contained in the original version of this article. For nearly 70 years, Coach (NYSE: COH) leatherware has been associated with "classic American style," offering handbags (representing over half of overall sales), luggage, accessories, fobs and other knickknacks. A dominant player in the "affordable luxury" handbag category, coach outlet backpacks a bifurcated strategy of operating "full price" and "factory" stores in different markets -- but both under a single Coach masterbrand. Although the items may appear to be the same design and quality to ill-informed consumers, they really are two separate businesses, as BrandCultureTalk recently found out to our chagrin.

According to a Coach outlet earnings release, the company operates 350 retail stores and 157 factory stores worldwide. At one time fashion brands used factory stores or outlets to move excess merchandise from their regular stores. Not so now. Today, most of the offerings found at factory stores are made specifically for sale at outlets, including 80% of Coach's "factory" inventory. The more merchandise Coach makes specifically for the factory stores, the less regular merchandise it liquidates, leading to "significantly higher profitability." The problem comes when people think they are dealing with a single near-luxury cheap coach factory backpacks brand. Some retailers deliberately maintain separate brands for their coach outlet online

stores like Nordstrom Rack, Saks Off Fifth, Neiman Marcus Last Call, to help keep brand experience expectations in check. For example, Nordstrom Rack offers customers a 30 day

return policy that is certainly reasonable, but a far cry from the legendary leniency of the flagship Nordstrom return policy. Others clearly delineate merchandise specifically manufactured for and sold only in outlets. Brooks Brothers sells a separate "346" line at a lower price (and some say significantly lower quality) specifically for its outlets, a common practice among retailers including Ann Taylor Factory, Banana Republic, Gymboree and many others.

Coach, however, deliberately encourages conflation between full price and factory. On a recent business trip, we had some time to kill before a flight and popped into the Coach factory store in Loveland, Colorado. Seeing what looked like a "real" Coach design, logo, tags, etc., we picked up a bag. Andrea Shaw Resnick, Coach's Senior Vice President of Investor Relations and Corporate Communications acknowledges that the Coach factory stores sell different merchandise but with the same excellent Coach quality at an "affordable luxury price." Well, maybe not. Two weeks or so after our bag was put into use the, "turnlock" fell off. Not a big deal, but certainly a defect that interfered with the essential function of closing the bag. We trotted over a short hop from BrandCulture HQ to Coach's Century City outpost where we encountered Brianna and explained the failure. Brianna knew at a glance that we had a "factory bag" and explained that we were in a "full price" coach outlet store where such a bag "would never be sold." To further amplify the point, she pointed out the Coach equivalent of the Scarlet Letter, a tell-tale "FS" in the serial number designating "factory style." Accordingly, she would not be able to exchange the bag or issue a refund -- even though we presented our original sales receipt. Brianna did say we could ship our factory bag to Jacksonville Florida (at our expense) where a team of experts would determine within 4 to 6 weeks whether or not the bag could be repaired. Just when this rigmarole seemed a bit much for a brand new defective bag, Brianna invited us to take a trip from Century City to the Coach factory stores in Camarillo (47.6 miles) or Barstow (126 miles) for a refund. Returning an item to a Coach factory store is inconvenient . . . by design. Normally Coach endeavors to locate its factory stores at least 60 miles or an hour's drive away from the full-priced outlets. One Coach brand, but two different businesses and very different brand behavior. Full price Coach never has mass-market sales (although it does sometimes mail out targeted offers to preferred customers -- see Comment 29 below). Factory Coach always has sales, sales and more % off sales!

Why does Coach do this? We're confident that Coach has reams of psychographic, demographic, market segmentation and focus group data -- bolstered by the 40,000 customer interviews the company purportedly conducts each year -- that show that the bargain-crazed, coupon-addicted factory store customers and the upscale full price shoppers are distinct cohorts and never the twain will meet.