When a brand puts its products in a retail store that it doesn’t own, it cannot control the prices that the retailer charges for its products. For example, if Macy’s wants to run a promotion and sell Coach handbags at a deep discount, there is little that Coach can do to stop it. That’s a key reason behind Coach’s recent announcement that it would be pulling its lines from many retailer chains, making it harder for shoppers to find its products but perhaps also making sure that those customers continue to regard it as a luxury brand.

In its recently announced move, Coach says it will eliminate about 25 percent of the retail locations in which it currently inserts its leather goods, which is equivalent to about 250 retail stores. At the same time, the brand announced that it would reduce its own markdown allowances, noting that the department store channels already offer many promotions, such that no further deals were needed from the brand.

Whereas broader distribution can increase sales by making the product available to more shoppers, Coach believes that access to its products also needs to be limited by price considerations, to avoid the threat that people will fail to perceive the leather goods as luxury items that demand higher prices to acquire. Other brands are considering similar moves in their effort to protect their brand image; Michael Kors announced recently that it too would be reducing both its inventory levels and the markdown allowances it provides to retailers.

Currently, Coach sells its products in its own branded stores, as well as multiple department stores, such as Nordstrom, Macy’s, Belk, Bloomingdale’s, Dillards, and Lord & Taylor. By removing items from many of these stores, Coach recognizes the risk that it might undermine some consumers’ ability to make their initial purchase and get to know the brand. It also predicts that its immediate sales numbers might decline. But over time, the benefits of maintain its luxury image should, according to the brand, outweigh these short-term challenges.

Discussion Questions: 

1. What is the desired impact of reducing the number of stores that sells Coach from Coach’s perspective?
2. Do you think it will work?

Source: George Anderson, Retail Wire, August 10, 201