The Coach driver's exciting journey
For the first 45 years of its existence, handbags and accessories maker Coach only sold its products in the United States.
But the New York-listed company, which started as a small family-owned business in 1941, has since become more aggressive in expanding its international operations.
It posted revenue of US$4.16 billion in its fiscal year ended July 2, opened its first European flagship store in London last September, and became the first US-incorporated company to list on the Hong Kong stock exchange in December.
Chairman and chief executive Lew Frankfort expects the dual-listing strategy to help 'raise awareness of the Coach brand among investors and consumers in the China market', which includes the mainland, Hong Kong, Macau and Taiwan.
'We believe China will surpass Japan as our No2 market within the next few years. We're looking forward to that as a milestone,' said Frankfort, who has transformed Coach from a cottage-industry manufacturer of leather goods into what he calls the premier American brand for 'affordable luxury'.
When Frankfort joined Coach in 1979 as vice-president of new business development, the company's annual sales were just US$6 million. He spearheaded initiatives to generate sales outside the US upon his appointment as company president in 1985, when it was acquired by global consumer-goods maker Sara Lee.
By the time Frankfort was named chairman and chief executive in 1995, Coach was rapidly strengthening efforts to broaden product offerings, modernise stores, accelerate retail expansion, improve operational efficiency and grow the brand's international presence.
The firm acquired its retail business on the mainland and in Hong Kong and Macau from luxury goods distributor ImagineX in September 2008 and its Taiwan retail business from another distributor last December. It also has directly-owned retail operations in Japan and Singapore.
To mark its 70th anniversary, Coach plans to have 100 or more stores on the mainland by the end of this year. It also expects to generate revenue of at least US$300 million from the greater China market in its fiscal year to June. 'We are building a multi-channel distribution model in China, including flagships, retail stores, shop-in-shops and factory stores,' Frankfort said.
In an interview with the Post, Frankfort talked about what it takes to shepherd the growth of Coach for 32 years and build up its business in the world's second-largest economy.
How has your management approach changed after more than three decades with Coach?
My values have remained the same. So has my passion for the brand, belief in the product, integrity in everything we do, our strong work ethic and drive for excellence. There has been a consistency in the way I think about the journey, the brand and the product.
But I've had to reinvent myself several times in order to be successful. I say that because when the business was extremely small, I had to do virtually everything. As the business became larger, more complex and more diverse, I needed to recruit senior people with the skill sets and similar values who I could empower.
Today, I'm more of a conductor of an orchestra where everything has to be in the right motion. Part of my time is spent towards new initiatives and new businesses. I also spend a considerable amount of time coaching and training my next level [of senior managers] and two levels down. I have a system of rigorous business reviews and monthly meetings.
Which initiatives helped support your expansion in Asia?
We run our business through a blend of magic and logic. The magic is in the touch and feel that lead to great design and products, as well as strong, impactful advertising and beautiful stores. The knowledge, or logic, comes from a rigorous system that we apply to become well informed about anything we're going to do before we do it. There's a term called 'best practices'. So we always learn as much as we can to see who has been successful and how they've been successful, as well as who has failed and the types of pitfalls they've experienced.
When we were expanding into Japan, we studied several different models of how people expanded [their business] in that country. Ultimately, we decided to find a single partner that had a very broad distribution network. In 1988, we entered into an agreement with Mitsukoshi, one of the six leading department store groups in Japan. The company became our partner and they spent a great deal of attention to create a dedicated team to build Coach.
We developed a five-year plan in which Mitsukoshi would introduce Coach shops across their chain of 30 stores. We designed the shops, controlled the image of the brand, pricing and much of the [staff] training. They provided the real estate and the staffing. So that was an early way to get started in Japan, and we had great success with Mitsukoshi.
Did your experience in Japan help guide your expansion in China?
What we saw in the mid-1980s in Japan was an absence of shopping centres and speciality stores. Most people shopped in department stores. Understanding where consumers shopped and how they buy imported goods was fundamental to choosing a premier department store partner in Japan. We actually worked briefly with [Dickson Concepts chairman] Dickson Poon when we started to look at China. We found out that Hong Kong had a limited number of department stores and most brands opened their own speciality stores. On the mainland, we saw a mix of department stores and speciality stores in the major cities.
So we wanted to work with a group that was seasoned in developing imported brands successfully across multiple [retail] channels. [Hong Kong-based distributor] ImagineX had successfully worked with [Italian fashion house] Gucci, who spoke very highly of them. So we entered into an agreement with ImagineX to introduce Coach through a multi-channel model.
So each market requires a different solution. One needs to be curious and knowledge-driven. If you think you can just export from your market a [specific] business model, you're more than likely to fail.
What helps determine which marketing campaigns work for consumers in the big metropolises and those in smaller mainland cities?
Beijing and Shanghai are cosmopolitan and sophisticated cities, where many in the population travel a great deal. They are more exposed to international culture. In secondary and tertiary cities, we speak with consumers about how they obtain information on brands and think about shopping. They've said that the internet - primarily social networking sites - plays a role in shaping their views and values. They've also talked about visits to the major cities to look at what's stylish. Based on how consumers obtain information and how this shapes their views, we try to influence them accordingly.
How challenging is recruiting staff on the mainland?
It's not a simple question to answer because we have applied different methods [of recruitment] to different needs. We've had a very large challenge recruiting field staff to run our stores and to supervise groups of stores. There isn't a tradition, particularly in the secondary cities, of providing high service levels. So two years ago, our team here began a campaign to recruit the better graduates from Chinese universities. In the last 15 months, we have hired over 100 college graduates while competing against investment banking and consulting firms also looking for people. That [competition] has been enormously helpful [to target the right candidates].
We also created incentive programmes. We have received approval from the mainland government to provide 'tandem equity' for our store managers. It is a way for us to attract talent. We provide them with the ability to earn the equivalent of shares in the company, which they need to sell when these vest.
At a more senior level, we do a great amount of recruitment from other companies. We work hard to be seen as a preferred employer in terms of work environment, compensation, equity, career opportunity and learning culture. We have a great deal of success in luring competent people away from other companies.
As a purveyor of 'affordable luxury' goods, how has Coach fostered a culture that allows designers to create compelling products at attractive prices?
It is a group effort. Since we're a very knowledge-driven company, we're very transparent with our designers. All of our designers understand the cost of a product, the price we're trying to design into and what objectives we're going to achieve. There are a lot of checks and balances that gives us a much higher level of predictability than many other companies in our space.
We have a very senior creative director, Reed Krakoff, who has been with us for 16 years. He is very commercial and not temperamental. So we're very fortunate that he is cost-sensitive and wants us to be successful commercially. We also have active merchants who partner with the designers, ... work within their individual markets and play a role in shaping the briefs [on trends and raw materials] before we even contemplate what we are going to make.
The proportion of Coach's sales worldwide the US accounted for last year. Japan was the second-largest market, on 18 per cent