The handbag bubble has popped

Coach is reinvesting in its North American shops in a bid to appeal to the next generation of shoppers.
Coach is reinvesting in its North American shops in a bid to appeal to the next generation of shoppers.
Image: REUTERS/Kevork Djansezian
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Luxury accessories maker Coach has been cutting back the prices of its bags, amid a global glut of purses that’s plaguing the once high-flying handbag industry.

The company finds itself in the same situation as competitors Michael Kors and Kate Spade, at least in North America. Coach brand sales decreased 7% to $731 million in North America during the quarter. The company explained the decline by pointing to lower tourist traffic and “a highly promotional environment,” according to the company’s second-quarter earnings release. (“Promotional activity” is industryspeak for discounts.) Overall, Coach reported a profit of $170 million, down 7.1% from just over $184 million the previous year.

Coach’s results underscore the tricky position some luxury goods companies find themselves in, as they increasingly are forced to cut prices and risk undermining years of brand-building.

Indeed there are already indications that some brands teetering on the edge of losing cachet. In May 2015, Millward Brown, a brand-strategy consulting group, issued a report showing the top 10 luxury brands, including Prada, Gucci, and Cartier, lost 6% in combined brand value, or about $7 billion, from 2014 to 2015. Coach, which once dominated the mid-level luxury brand space, now faces fierce competition that has it scrambling to distinguish itself and prop-up declining profit margins.

For its part Coach has made moves to diversify away from reliance on the handbag-centric Coach brand, snapping up luxury shoemaker Stuart Weitzman last year. Sales of Stuart Weitzman boots gave Coach a bump during the quarter, company officials pointed out.

“In a season where boots were not selling given the unseasonably warm weather, they were the top performer across all channels, whether it be … in top-tier department stores in the US, Europe, and in China,” said Chief Executive Victor Luis.