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Coach, Inc. (COH): Compelling Reasons to Sell This Retailer

I’ve been inclined to give Coach, Inc. (NYSE:COH) a pass over the last year, even when it stumbled over fundamental issues. Today, let’s play devil’s advocate and look at some of the looming issues at Coach, Inc. (NYSE:COH). The company is facing stiff competition, and with its eye always on expansion, it risks losing out on its core demographic.

Coach, Inc. (NYSE:COH)

Michael Kors Holdings Ltd (NYSE:KORS) has managed to stay out in front for a year and a half now, and its sales continue to climb. Other competitors are also lurking, vying for consumer dollars that are at risk of becoming scarce, as Europe drifts backs toward a slowdown and China’s growth pulls back.

Brand concerns
The worst news Coach, Inc. (NYSE:COH) has put out this year came in its second quarter, announced in January. The company recorded soft sales in its North American women’s handbag line. That’s the company’s core competency, and any lack of focus could set off a chain of very bad events for Coach. The company managed to save some face in its most recent quarter, and comparable North American sales rose 1%. Management also said that it expected to see high-single-digit growth in American handbags, but that’s still just a hope.

The problem Coach, Inc. (NYSE:COH) is facing is largely the problem of competition. North American comparable sales grew 35% at Kors in its last quarter, with the company draining market share from Coach. The out-and-about crowd is moving away from Coach, and even the celebrity sightings portion of the company’s website has started to look like a who’s-who of the cutting-room floor.

On the other hand, Michael Kors Holdings Ltd (NYSE:KORS) is still going strong, decking out politicians and celebrities alike. In part, Kors is benefiting from the personality of Michael Kors the man. Coach, Inc. (NYSE:COH) is so far detached from a designer that it’s hard to get excited about. Kors’ participation on Project Runway helped promote his brand in addition to his face.

Besides Michael Kors Holdings Ltd (NYSE:KORS), Coach, Inc. (NYSE:COH) is going to start seeing more and more pressure from new designers eager to follow in Kors’ footsteps. Tory Burch is at the top of my rising stars list, and I’d be surprised if the designer hasn’t had an IPO by this time next year.