Selena Gomez and her rabid fan base is Coach's biggest weapon against the competition
Randal Konik, an analyst at Jefferies, had trouble getting into his office in the SoHo neighborhood of New York City on Wednesday. He arrived at his building at 6 a.m., before the sun even rose, but it wasn't early enough. A line of rabid Selena Gomez fan lined the block hours before they would get a chance to meet the star, and they were blocking the way to his office.
"Based on the lines, the event should be a success, and provides a solid media opportunity for Coach as it continues its brand turn," Konik wrote in a research note. "Kudos to Coach's leadership on a smart strategy"
The fans Konik ran into were at Coach's flagship store in New York for a meet and greet with Gomez. It was the latest example of the brand using Gomez's star power to boost its brand. The company announced a partnership with Gomez in its second quarter earnings call and has been using her star power to reach a whole new audience.
Coach has been using Gomez to the absolute max. In addition to the fan meet and greet, the company used Gomez's fame to boost their presence at New York City's Fashion Week. The company sat Gomez next to Anna Wintour, the famed editor of "Vogue." The "Selena Grace" bag, which Gomez designed, was seen on the Fashion Week runway, and fans were able to have their own bags signed by Gomez at the store's event on Wednesday.
Gomez is also lending her 126 million Instagram followers to the effort. Since announcing the partnership, Gomez has gained 14 million followers and is the largest account on the platform. She has posted several times about her new bag and, since partnering with Coach, has appeared on the cover of "TIME" and "Business of Fashion" magazine. In an appearance on the cover of "InStyle" magazine, Gomez tagged the Coach account in her post about the cover.
Coach has historically catered to the high-cost, high-fashion industry. With Gomez, Coach is branching into lower cost items, and is using Gomez's name to test items at a lower price point.
"We think lower priced goods need to increase in velocity for the core Coach brand to be able to sustain comp sales growth," Konik wrote in his note about Gomez and Coach. "Thus in future quarter calls we think investors will need to focus on this <$400 price strata to gauge the longevity of the Coach brand turn from here."
Konik is rather bearish on Coach, though it's not because of the pop star affiliation. He writes that Gomez might be the boost Coach needs to reach sales that justify the company's share price. Priced at around 18 times the company's earnings, it is more expensive than competitors like Michael Kors, which is valued at closer to 10 times its earnings.
Konik places a price target of $42 for Coach, which right around its current price of $42.06.
Coach shares are up 18.45% this year.
