Growth company highlight: Coach Inc (COH)

Readers of our client letters and our Taylor Frigon blog know that in the past, we have highlighted some examples of businesses which we believe fit the definition of a Taylor Frigon growth company. These short vignettes outline the business model of the company and give a brief overview of our investment thesis for the business. They typically feature a company which we own for the Core Growth Strategy at the time of publication, and enable our clients to gain some insight into the reason we own a particular company and the characteristics of the companies which we believe can be described as “well-run companies positioned in front of fertile fields for future growth.”

Previous companies we have highlighted include EZchip and CH Robinson Worldwide, and while we do invest in many companies that are involved in what we believe are high-growth aspects of the high-tech industry, we often feature companies that are not primarily tech companies in order to demonstrate that Taylor Frigon growth companies can be found in many different industries.*

That is certainly the case for the classic Taylor Frigon growth company Coach Inc (ticker symbol COH).* Founded in 1941 in a loft in Manhattan New York, and inspired by looking at old baseball gloves and seeing the way they burnish with age (see the burnishing in the image above of the iconic glove of Willie Mays), Coach has since grown to become one of the most-recognizable luxury brands in the world. Their high-quality premium lifestyle accessories now include handbags, accessories, apparel, travel goods, business accessories, footwear, and fragrances, but it all started with quality leather handbags that sought to emulate the classic burnished baseball mitt!

Coach sells their merchandise through upscale Coach stores in the US and other countries (especially the Asia Pacific region), as well as through wholesale distribution to department stores, specialty stores, and duty-free stores located in over twenty countries. The company is taking advantage of the spread of economic freedom to other countries in the world (such as China, where economic freedom was horribly absent for decades), which enables more people to start businesses, contribute to others by providing desired goods or services, earn more money, and then improve their standard of living, some of which they often choose to spend on quality luxury goods such as those provided by Coach.

With the majority of their items priced between $125 and $400, Coach is more accessible and reaches a larger demographic than the typical European fashion house selling bags in excess of $700 or even in excess of $1,000 to $3,000. Coach’s competitive advantages also include the company’s carefully-maintained and distinctive brand, the quality of their materials, the store experience, a very high customer service level, and the existence of factory stores (typically located more than fifty miles from the nearest major market) to address a more value-oriented shopper.

Coach is the number one luxury bag brand in the US and the number two luxury bag brand in Japan. Future growth fields include new target markets within the US (such as the teen demographic successfully targeted with the introduction of the Poppy collection in 2010), further expansion into the men’s bag and small leather goods market, and its ongoing expansion into international markets.

* At the time of publication, the principals of Taylor Frigon Capital Management owned shares of securities issued by Coach Inc (COH), EZchip (EZCH), and CH Robinson Worldwide (CHRW).