August 27, 2008, 12:00 AM

Big web changes don’t translate into more e-commerce sales for Coach.com

Coach spent fiscal 2008 making wholesale changes to its Internet channel, but the effort didn’t produce any sales growth on Coach.com. Despite rebuilding Coach.com and other initiatives, web sales declined slightly, the company says.

Mark Brohan

Research Director

Coach Inc. spent fiscal 2008 making wholesale changes to its Internet channel, but the effort didn’t produce any sales growth on Coach.com.

In fact, after web sales grew by 52% to $82 million in fiscal 2007, e-commerce sales for Coach.com declined slightly in fiscal 2008, though the company isn’t saying by how much. “Our Coach.com sales were very slightly below fiscal 2007 levels, but we opened up additional Internet sites for Coach product, notably on Macys.com, Dillards.com and Nordstrom.com,” says a Coach spokeswoman.

In previous years, Coach, No. 146 in the Internet Retailer Top 500 Guide, broke out web sales in its annual report. But in its most recent 10K filing, Coach reported that the Internet accounted only for about 2% of total sales. The Coach spokeswoman also says the company rounds up to the nearest whole number for some figures in its annual filing, meaning that at 2% or 2.5% of total sales of $3.18 billion, 2008 web sales for Coach.com likely ranged from $63.6 million to $79.5 million.

Flat web sales are in contrast to what otherwise was a healthy year financially for Coach. Overall profits and sales for Coach grew steadily in the fourth quarter and in fiscal 2008. In Q4 Coach reported net income of $213.5 million on sales of $781.5 million vs. net income of $172.5 million on sales of $652.1 million in the previous year. For the full year Coach posted net income of $742 million on sales of $3.18 billion vs. net income of $663.7 million on sales of $2.6 billion in fiscal 2007.

In its latest fiscal year, Coach devoted considerable resources to grow its e-commerce channel. The manufacturer and retailer of hand bags and related items redesigned Coach.com and added a Canadian site. Coach also launched a buy online/pick up in store program and sent about 67 million e-mails to select customers, the company says in its annual report.

Coach isn’t saying much about why its web sales aren’t accelerating. On a recent year-end earnings call with Wall Street analysts, Coach CEO Lew Frankfort said the company sees Coach.com as a significant marketing tool. “We have a very vibrant Internet available to us where we have over one million visitors per week,” he told analysts. “The Internet is a principal communications vehicle to introduce new collections and we’re doing that through substantial targeted mailings.”

But the fact that e-commerce revenue declined in the last fiscal year has web retailing analysts suggesting that the company might need to readjust its Internet strategy.

After making a significant investment in e-commerce technology, Coach now has the infrastructure to become a major player in the online luxury brand apparel and accessories space, says Jim Okamura, a senior partner at retail consulting firm J.C. Williams Group Ltd.

But in the short run, particularly to boost web sales during the holiday shopping season, Coach also needs to rethink its approach to online retailing and target customers with more promotions and merchandising programs that will convert visitors into buyers, Okamura says. “They’ve laid the ground work to make it easier than ever to shop one of the retailing industry’s most recognized brands online and that’s the message they need to get across to shoppers this holiday season,” he says. “With an adjustment in strategy, their web sales should begin to accelerate.”

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