Why Coach is the new tell on Consumer Spending

Essay by robstubs15College, UndergraduateA, September 2007

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Many are citing the deteriorating retail numbers as a tell on the economy, with Walmart in particular as an indicator. I'd like to use Coach (COH) as my tell. This luxury retailer has been a wonderful stock that I've traded a few times over the past few years, but in truth just buying and holding this stock would have been the better play many times. Coach is a bit of a status symbol, and something many people in Low/mid/upper class suburbia buy Because the handbags have various different price points. So in fact I think this is a lot better tell on the economy than Walmart. The core customer of Walmart is more of the discount shopper already strained by the hikes in gas, energy, and now grocery prices. This speaks to America's obsession with appearances and keeping up with the Joneses. Even when one cannot afford a handbag, one can pretend to show others they can afford it for the evening.

Just one thing troubled me with their last earnings report and that was there is a good chance the brand mystique could be wearing off as the company opened new stores rapidly and had a line of bags selling for less than $400. The final quarter did little to convince me otherwise as the company reported factory store sales rose 31.2% while normal full price retail sales were only up 11.6%. Basically they are making more money at the discount outlets than the full price retail stores which should lower their operating margins in the not too distant future. there is no doubt in my mind that a move that the company expects to open about 40 new full-price stores in North America next year and at least 6 factory stores. That is in line...