Coach struggles in handbag battle as sales fall

US leather brand Coach appears to be losing the battle of the handbags as it reports a 21 per cent tumble in US retail sales.

The leather brand, which is undergoing a turnaround under new chief executive Victor Luis and new executive creative director Stuart Vevers, reported global sales down 7 per cent in the third quarter as it fails to compete in a crowded market selling £300 handbags.

The New York-listed group, which turns over around $5bn a year, reported sales for the quarter to April of $1.1bn – below the $1.19bn in the same quarter last year.

Net income for the period reached $191m – with earnings of $0.68 a share, down from $0.84.

The group has been particularly hit by competition in its home market from rivals such as Michael Kors. Coach said North American sales fell 18 per cent to $648m and comparable store sales were down as much as 21 per cent.

However international sales were up 14 per cent to $441 million and it said it expected sales in China, which were ahead 25 per cent, “to deliver… over $540m”. Its Japanese business also performed well with sales 10% better.

Consumer goods commentator Rahul Sharma of Neev Capital said: “The odd bit is how Coach still remains cool in China in the age of global social media and awful US trends. But despite very poor sales, Coach’s selling margin is over 71 per cent, stronger than expected.”

The brand is trying to improve its image in a market where it is regarded to be too common and has discounted too much. It said it is now limiting “the access and invitations to our factory flash site” as part of its plan to improve its appeal in the States.

In contrast expensive silk scarves and Birkin bags maker Hermès revealed a 10.1 per cent jump in group sales for the first quarter to April and defied fears of an Asian sales slowdown.

Non-Japan sales were up 18 per cent, showing that China’s desire for its French-made wares, such as its £5000 Kelly bag, has not waned. US sales were ahead 18 per cent and Europe was better by 8 per cent where “activity remains sustained in a difficult economic environment.”

Sales for the period reached €944m (£777m), up from €857m for the same period of the previous year. Excluding currency swings, retail sales were up 16 per cent.

Japanese sales were up 22 per cent as shoppers spent ahead of a planned sales tax hike.

The group has continued to expand and will open a new factory in France to cope with the global demand for its designs.

Hermès said it will “continue its long-term strategy based on creativity, maintaining control over its know-how, expanding its distribution network, strengthening its production capacity and securing its supply sources” and credited its success to its “unwavering determination to continually reinvent itself.”

The strong results will also please French rival LVMH, which has a 22% stake in the 177-year-old group.

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