Why Coach's former CEO says America's future depends on immigrants.

Key Concepts

• Accessible Luxury: A market segment offering high-quality, stylish products at a more attainable price point than traditional luxury brands.
• Brand Authenticity: The genuine and consistent representation of a brand's values, quality, and heritage.
• Democratized Luxury: Making luxury goods and experiences accessible to a broader consumer base.
• Sustainability and Purpose: Growing consumer demand for ethical business practices, environmentally friendly materials, and brands with a clear social mission.
• Gen Z Consumer: A demographic segment characterized by a focus on sustainability, authenticity, self-expression, and digital engagement.
• Resale Market: The growing market for pre-owned luxury goods, indicating a shift towards valuing durability and longevity.
• Mental Health and Well-being: The importance of addressing mental and physical health, particularly in high-pressure leadership roles.
• Global Economy and Supply Chains: The interconnectedness of international markets and the challenges and opportunities presented by global manufacturing and trade.
• Immigration and Workforce: The role of immigration in filling labor shortages and driving economic growth.
• Brand Naming: The strategic importance of naming products to foster emotional connection and brand recognition.

Lou Frankfurt's Journey and the Evolution of Coach

This episode of "Opening Bid Unfiltered" features an interview with Lou Frankfurt, former longtime CEO of Coach (now Tapestry), hosted by Brian Sazi, Yahoo Finance Executive Editor. The discussion centers on Frankfurt's career, the transformation of Coach into an iconic brand, and his insights into the retail and luxury markets.

From City Government to Fashion

Frankfurt's entry into the fashion industry was serendipitous. After a decade in city government managing childcare programs, a chance encounter with a professor led him to an opportunity with a small handbag company. This marked the beginning of his career in 1979.

The Genesis of Coach: Quality and Authenticity

In its early days, Coach was a small company ($6 million in sales) known for its natural leather cowhide bags. The brand's appeal was rooted in:

• Durability and Quality: Bags developed a patina over time, signifying longevity and superior craftsmanship.
• Emotional Connection: Owning a Coach bag was a personal experience, with the bag serving as a repository for essentials and evoking positive emotions and images.
• Value and Authenticity: Coach represented the "real thing," offering tangible value and genuine craftsmanship.

Building the Coach Brand: From Founder to CEO

Frankfurt's rise within Coach was rapid. He became President in 1985 and CEO in the same year, after helping the founder monetize the company's value.

• Acquisition by Sara Lee: In 1985, Coach became part of the Sara Lee Corporation, a conglomerate with a diverse portfolio of consumer products (e.g., Hanes, Champion).
  • Sara Lee's Ambitions: Sara Lee aimed to own various consumer product categories.
  • Coach's Multi-Channel Strategy: Even with modest sales of $25 million, Coach was a multi-channel business, selling wholesale to department and specialty stores, operating a catalog launched in 1980, and opening its first retail store on Madison Avenue in 1981. This direct-to-consumer approach was a key growth strategy.
  • Synergy: Sara Lee saw potential in Coach's direct consumer engagement to accelerate learning in their other packaged goods brands.
• Going Public: Coach remained with Sara Lee until 2000, when it went public.

The Philosophy of "Accessible Luxury"

Frankfurt describes his vision for Coach as a "democratized luxury brand."

• Bridging the Gap: In the American context, lacking a strong tradition of high luxury, Coach occupied an important space between mass-market and luxury.
• Middle-Class Aspirations: As consumers moved into the middle class, they sought brands that delivered on promises and inspired belief.
• Mirroring American Values: Coach, for Frankfurt, mirrored the best of America and New York – embodying purpose and belief.

Unwavering Commitment to Quality

Despite market pressures and changing trends, Coach maintained its commitment to quality.

• DNA of Quality: Quality was ingrained in the company's DNA from its inception, credited to founder Miles Cahn.
• Product as the Centerpiece: The product was the core of the Coach story, anchored by the brand and the marketplace.
• No Compromise: There was never a question of compromising on materials or workmanship, even when competitors did (e.g., issues with hardware plating).

Navigating Fashion Cycles and the Rise of Gen Z

Frankfurt discusses the evolution of fashion cycles and the impact of new consumer demographics.

• Past Trends: The "C" logo bag was popular, but during the Great Recession, consumers shied away from overt logos due to concerns about appearing ostentatious.
• Current Inflection Point: Gen Z is a significant and growing force in luxury accessory spending (currently 25%, projected to be 45%).
• Gen Z Values: This generation prioritizes sustainability, purpose, and authenticity.
• Reshaping Luxury: Coach, under current leadership (Todd Kahn and Stuart Vevers), focuses on emotional and cultural relevance, emphasizing sustainability and authenticity.
• Discerning Consumers: Young consumers are ethical and seek brands that align with their values.
• Self-Expression: Products enable self-expression beyond traditional luxury.
• Resale Market Strength: The vintage and resale market is robust and expected to grow, indicating a preference for durable, meaningful products.
• Value over Quantity: Gen Z is inclined to pay more for a high-quality, durable Coach bag that reflects their values, rather than owning multiple less expensive, unbranded items.

"Bagman": A Book on Leadership, Mental Health, and Resilience

After leaving Coach in 2014, Frankfurt has remained active in investing and advising. He felt compelled to write his new book, "Bagman," for several reasons:

• Sharing the Real Story: To tell a comprehensive story about leadership, values, and brand building, including his personal struggles.
• Fear of Failure and Mental Health: Frankfurt candidly discusses his fear of failure and mental health challenges, aiming to help younger individuals understand that life is not always easy.
• Listening to Your Body: He encourages readers to pay attention to physical signals (lack of sleep, fatigue, aches) as indicators of well-being and to address both physical and mental health.
• CEO Burnout: While acknowledging burnout, he notes that younger CEOs are more attuned to well-being. However, he also points to "hardwired narcissists" who lack humility.
• Self-Regulation: Frankfurt developed techniques to manage the highs and lows of being a public CEO, including anticipating challenging situations, compartmentalizing work and personal life, and practicing self-regulation in interactions.

The State of Retail: Tariffs, Supply Chains, and Workforce Challenges

Frankfurt offers his perspective on current retail challenges:

• Profitability in the US: While it's possible to make bags and accessories in the US, achieving the best consumer value often requires manufacturing outside the US using fine materials and skilled craftsmanship.
• Global Economy: He believes in the long-term success of the global economy, despite current trade tensions.
• Managing Through Uncertainty: If leading a global retailer today, he would proceed carefully, being mindful of passing costs to consumers and not jeopardizing suppliers. He would also consider developing more entry-level products.
• Workforce Shortages: The inability to fill critical jobs, such as auto mechanics, highlights a skills gap. Frankfurt attributes this, in part, to a decline in the appeal of certain jobs to subsequent generations and a need for immigration to fill these roles and fuel economic growth. He emphasizes the importance of attracting immigrants who seek the "American dream."

The Art of Naming Coach Handbags

Frankfurt shares his insights into the naming of Coach handbags:

• Emotional Connection: Names are crucial for consumers to identify and form an emotional connection with their bags, similar to knowing a person's name.
• Brand Identity: Names like "Brooklyn" evoke specific associations and allow for proud identification.
• Art and Science: Naming is a blend of logic and magic, considering the potential user's personality and the bag's attributes.
• New York Roots: Coach, while global, remains a New York brand.

A Career Defined by Purpose and Relationships

Reflecting on his career, from his father's role as a New York City police officer to leading Coach, Frankfurt emphasizes:

• Purpose and Relationships: His career has been driven by a belief in what he was doing and the ability to attract and motivate teams focused on the "greater good."
• Collaborative and Curious Culture: He fostered a learning environment characterized by collaboration and curiosity.
• Legacy Brand: His greatest pride is seeing Coach become a legacy brand that endures across generations.
• Continuous Evolution: Despite its global powerhouse status, the current leadership team remains focused on understanding consumer needs and future trends, particularly with Gen Z.

Conclusion

Lou Frankfurt's conversation with Brian Sazi provides a deep dive into the principles that built Coach into a global brand. His emphasis on quality, authenticity, and understanding consumer needs, coupled with his candid reflections on leadership, mental health, and the evolving retail landscape, offers valuable insights for investors and aspiring business leaders alike. The discussion highlights the enduring power of a brand built on purpose, strong relationships, and a commitment to excellence, while also looking forward to the challenges and opportunities of the future.