Transcript

How Coach scaled from a single store into a global icon

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0:53 Hey folks, Jeff Berman here. I am thrilled to share some of the new names who will be joining us at this year's Masters of Scale summit. This may be our biggest stage yet. Reed Hastings, Meredith Whitaker, Van Jones, Amjad Masad, and more. Will be there with us October 20th through 22nd in San Francisco. If you're building something great, or you want to build something great, We want you there with us too.

1:20 Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. He said, Well I have a friend. From childhood who has a small pocketbook company called Coach.

1:46 It's six million dollars in sales. He's sixty years old, and he's looking for a protege. And he's looking for someone who has two qualifications. One, they have no fashion experience. That was me. And the second was good values. And I said, well, I got good values, I think. What did you join coach as? What was your role coming in?

2:10 Effectively as an assistant to the CEO, I got the title VP for marketing and special projects. I mean titles are free. He's not great. This is Masters of Scale. I'm Jeff Berman, your host today on the show, Lou Frankfurt. Lou spent decades as CEO of the iconic brand Coach. When he started there, the then small New York City handbag maker was doing about$6 million a year in sales. Under Lou's leadership, Coach grew into a billion dollar brand. and an international icon known for a new category of accessible luxury.

2:46 In his new memoir, Batman, Lou reveals fascinating insights about how to scale, and he shares some of those insights with us here today. Lou, welcome to Masters of Scale. Delighted to be here with you, Jeff. One of the many reasons that I've been looking forward to sitting with you is you and I have a couple of things in common. I'll flatter myself, and one of them is we both started uh careers meaningfully in public service. And I'm curious just how you got started in government. I'm a product of the sixties and I

3:18 came of age thinking that my generation would Create a better world. John Lindsey was mayor and he was recruiting young people, idealistic people who uh wanted to go on the journey with him. And uh After one year I decided I was either gonna leave city government because I was surrounded by people who were looking to just get to Friday or get to vacation. I was looking to improve things. So I thought I would take a chance

3:49 with one more job. So I looked for a mentor who really wanted to make a difference and and I found that person. How did you go about seeking a mentor? I networked in city government. And ask about who's smart Who cares and who can get stuff done. And there were two people that were mentioned at the time. One was this guy, Herb Rosenzweig, and I reached out to Herb and uh he hired me. And uh I went with him as he moved to different positions and ultimately my profile was high enough so that

4:25 when the city was looking for someone who might be able to go in and Try to fix. the daycare and head start programs in nineteen seventy six when there was the poster child for inefficiency and corruption, uh people uh thought of me. What attracted you to the challenge of reforming these massive and massively important programs.

4:48 I really believe in Daycare and Head Sought Services, I believe in creating as much opportunity as possible for the underclass. an essential fabric of who we are, not just then, but today. Uh our country is based on immigrants, and we may be third generation, or second, or first, or tenth. It doesn't matter. We need to welcome them and we need to create opportunities. And the program was really in danger of collapsing. Why was it at risk of collapsing? Because it was not administered well.

5:21 So when audits occurred, they found in many instances only half the kids were eligible. And they found this community based program frequently run by people for their self interest, not for the greater interest of the community. So they employed unqualified relatives. They in many instances sadly were also corrupt. And it made headlines. So this was a turnaround. I mean, really it was a turnaround. Right. And so you're coming in, you're dealing with incompetence, you're dealing with corruption, you're dealing with bureaucracy And one of the challenges of these situations, unlike particularly a a smaller private company that's a turnaround, is you don't fully control it. I mean you've you've got to deal with

6:06 A lot of people, a lot of systems, a lot of laws, a lot of regulations. How did you attack the problem? First thing I did was Look to recruit a coalition of leaders. Cool. Felt purpose.

6:19 who had similar values as me. I wanted to maximize the number of children that would be able to stay in care with quality service. So I brought in a what would be called a rainbow group of staff. We work twenty four seven. And we got the programs to a place. When no eligible child Was denied service.

6:43 Where we were be able to manage To a lower budget. Improve the quality of care and Ultimately H E W, which had identified us as the worst program in the United States complimented us and said other programs should follow our example.

7:02 Ed Koch was mayor at the time. And He Passed me over for a job that I Phil.

7:10 particularly qualified for and When I met with him he said to me, Lou, you're too principled. And I knew exactly what he meant. What did he mean? Well, three years earlier.

7:24 When he was a congressman in Manhattan. He came to my office, the only congress person that came to my office to ask me to save a program outside of his district. And did not want to know why they were being defunded. And expected that. Based on

7:43 our meeting I would just save this program and I knew He was coming. It was the one. Call I got from City Hall where they said you must meet with Congressman Kotch. He's very influential. And they gave me a heads up on the program. And

8:00 I said I'll meet with him, but based on Measurable. Standards, metrics. It was In the bottom. Ten percent of all.

8:10 programs, only fifteen percent of children were eligible. Out of every one hundred, fifteen had income low enough. The other 85, they didn't provide standards or they had the higher income. And Maya said this to me when he was a congressman and I said. Congressman, I I'm not sure I can do there's anything I can do.

8:32 And he said, You know what I want. I said, I understand. And of course I went on to defund the program. So basically th the he came around a few years later as mayor and said You know, you're not my guy. After that run in with May Ed Koch, Lou knew it was time to move on from city government. Luckily for him, it was pre-Uber.

8:53 And he shared a cab with exactly the right friend. One dark night. And he said, Well, I have a friend from childhood who has a small pocket book company called Coach. It's six million dollars in sales. He's sixty years old, and he's looking for a protege.

9:11 And his children aren't going into the business and he's looking for someone who has two qualifications, which I asked. He said, One, they have no fashion experience. That was me. And the second was good values. And I said, Well, I got good values, I think. And four interviews later I gave notice and joined coach. What did you join coach as? What was your role coming in? Effectively as an assistant. to the CEO.

9:39 I got the title. VP for marketing and special projects. I mean titles are free. And Considering coach. Was to do a deep search.

9:53 As to what is coach and I went to the end user. And what I learned. In my interviewing. pretended to be a businessweek reporter.

10:05 And spoke to the buyer from Bloomingdales, someone from Bonworth, someone from Macy's, and went into a handbag store on seventy second street. I learned coach had a cult following. And People loved coach. And you were pretending to be a reporter because you were worried that they wouldn't tell you the truth if they knew the actual culture. If I identified myself As a reporter from Business Week, I would have access

10:31 Two Most people, divisional managers, GMs, maybe even presidents. So everyone took my call and I asked for meetings. And I was writing an article about this small private company coach. And so what did you learn? One, I learned that women A particularly loyal.

10:51 to bags. Because it's a very personal object. It's a vessel they open fifty, sixty times a day. When in the case of coach, we had the beautiful and still do natural leather that develops a patino over time. A baseball myth. So over time it would never wear out. It would wear in. And the bags would sturdy and well made, durable, and I thought great value, and people love their coach.

11:20 So take us on the journey from this tour as a posing business week reporter and the insights that you're getting to then how you deploy those insights against the business to begin to grow it. The first notion I had Was that we had a loyal. Consumer base. I Then

11:38 When to look for models. outside the United States where handbag manufacturers were also selling Directly. And in Europe. There was a very uh well established luxury.

11:52 group of brands led by Louis Vuitton. It was a relatively small brand. And I admired them because they control their destiny. They only sold in their own stores. At one price. Controlled. The merchandising The staffing.

12:09 the service levels, all the policies. And when I looked at Louis Vuitton As a luxury brand. I thought to myself the coach. could become one day a democratized luxury brand. And rather than being accessible to the top one or five percent of the population, we could be broadly accessible to the top twenty to forty percent of the population because We

12:35 Offer the product that was unique. had a lot of grit. Very much American natural leather. We coined the term twenty years later, accessible luxury. Well, and I feel like this concept of accessible luxury wasn't even really in the marketplace at the time. So In my mind's eye. I saw a growing owns.

12:57 Of a rapidly growing middle class Population. With the benefit of hindsight when you look back on it, Lou, what was the inflection point? The magical moment occurred in nineteen eighty one. So I was only a coach.

13:12 Twenty four months. And I convinced the founder Or I convinced the founder's wife to allow me to open A coach store. On Madison Avenue.

13:24 The first Christmas we opened in October of nineteen eighty one, four hundred and fifty square feet. So narrow. Eleven feet wide, forty feet deep. Fifty thousand dollars to fixture the store. We needed to do three hundred thousand dollars. to basically break even. That Christmas we had lines out the door to the corner, and we did over a million dollars in year one. And I knew that there was something special. Why did you have lines out the door? What happened?

13:58 Well I had started a catalog business. eighteen months earlier. And it was clear based on my early marketing in terms of Speaking with consumers. visiting with consumers, looking in their closets about what bags they carried.

14:16 How many bags did you have in your closet? What role did coach play? What would encourage you to buy a second bag? It was clear to me that if we were able Two put our entire assortment in one place and have seasoned sales people. In our store, the aroma of leather.

14:34 Natural leather. So people went into a bespoke environment. There was nothing cookie cutter. Miles and I designed the store ourselves and was uniquely coach. By that time we had a file of about Hundred thousand people through our mail order. business that I had, catalog business. And we invited twenty thousand of them.

15:02 to the store. They had lived within a hundred miles. We had special events and they came because they believed and loved coach. I feel like this is such an important point to drill down on because you didn't just say, Well, we think we have a brand, we think we have a a story to tell We've got a theory of the case in terms of Madison Avenue and accessible luxury, so we'll open it and then we'll hope it works. I had I had real clarity. It would it would be successful. I never dreamt from the start would be as successful as it was. It was We ultimately did. ten thousand dollars a square foot in that space. Which is a crazy number. I mean that's that's a Tiffany's number. I mean that's a ridiculous number.

15:43 So you launched the Madison Avenue store, it's doing a million dollars in a business that was only doing six million dollars top line two years earlier. What's the next step in the evolution, coach? The spring of nineteen eighty four, we were twenty million dollars and the channels that I started were about fifty percent of the business. That I'm gonna sell the business, Lou.

16:07 Rather than Make you and the others my partner. And if you stay. Through the transaction. I'm going to recommend that you

16:18 become CEO because I'm going to leave the day of the sale. But I want you to know, Lou, between us you're not ready for this. And I said, I understand, Miles. So there were several groups interested and I was able to negotiate the best price from the group that I thought would be the best for the future of Coach, which was a big conglomerate called Sarah Lee. What did Sarah Lee do right, both in acquiring coach and integrating coach into Sarah Lee? And what did it get wrong? At the beginning.

16:54 First was Building. A team. They were really focused on making sure that I had the right people.

17:03 What did they get wrong? Well Along the way. They unsuccessfully tried to Use the power of coach.

17:11 To help Get brands into locations where they want to open shops. They came to me when J C Penny was still a very strong mass brand.

17:27 eating the Partners lunches. J C Penny wanted to bring coach in and our customers candidly weren't shopping there. At least not yet, they weren't. And I declined. At the same time, Sarah Lee wanted to open Haynes and champion shops. J C Penny. If you get coach to come in on we'll open the shops. And uh so they came to me to push me to do that, and I of course declined.

17:56 I was prepared to Have them. to terminate me rather than do things. That made no sense. Summarizing many discussions over time, but there was a handshake between me and the CEO Chairman of Sarah Lee that if I could get them a billion dollars, they would give us our freedom.

18:15 Not bad given when they bought you you were hoping to get to twenty five in revenue. So they paid thirty million. Okay. It's a pretty good return on investment. Still ahead, how Lou Frankfurt blended magic and logic to scale coach to new heights. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely. From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there.

19:11 Humans will never be more intelligent than AI. There can be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Calyubi.

19:26 And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Welcome back to Masters of Scale. You can find this conversation and much more on our YouTube channel and Be sure to check out the show notes to find a link to our newsletter.

20:05 So how did you get it to a point where you could spin it out of Sarly? First I recruited The right business leaders. Second, we aligned as a team.

20:18 We needed to do to prepare To go public. And third. We went about doing it in a very systematic way. And by the time nineteen ninety nine Rolled around.

20:32 It was clear to me through the green shoots That we had measured that we were on the cusp of A breakout. And I wanted to get out as quickly.

20:45 grew so that the benefit would accrue to the coach shareholders, not to the Sarah Lee shareholders. Right. There's a sweep in the spring of The year two thousand. We agreed that we were gonna go public. We engage with Goldman Sachs. And even though the market went through a dip in the middle of the year and there was some discussion of pulling the IPO, I was able to deliver numbers. That gave Goldman.

21:14 Confidence. that they could take us public successfully, which we did. Well one of the interesting things about the timing is as the dot com bubble is bursting, you are very much not a dot com stock. And the other thing was we needed to develop storytelling that would make sense. And we coined the term accessible luxury. And the business. grew very, very rapidly. We revamped our entire supply chain. We broadened the personality of coach. We introduced major new collections that had

21:47 Very broad. appeal in Asia. on bags in Japan they spent at the time six times as much as the average American spent. And why Japan has an egg shaped economy, particularly back then. Everyone was middle class. Right. And the number one possession was

22:08 A European luxury brand. Yeah. I didn't go in To target the European luxury brands I went after. The young female professional

22:19 Who What Looking to be emancipated. Not get married right away. But travel.

22:27 be independent, break the glass ceiling. And I was able to offer her a bag at 40,000 yen. while the European competitors were a hundred thousand yen and she could save that sixty thousand yen and go to Korea for a weekend, hotel and airfare. Do I wanna uh focus in on some of the leadership lessons from your career. One of the things that strikes me, you got a lot of companies right now But will tell you that they're data driven.

22:56 At our company, one of the things we talk about is being data informed, not data driven, because data can't be everything. Well, uh you say of course, but there are a lot of people out there who will tell you look at the numbers and you act on the numbers. Help us understand how you've approached integrating. data and logic and sort of, you know, traditional left brain with vision and creativity and imagination, more more traditional right brain. I coined the term magic and logic. And it's now language we

23:25 continue to use a coach. My successors use it today, and it's part of embedded in our culture. Magic is having belief Having vision. Seeing something that doesn't exist. Curiosity that you're going to probe and learn. And another aspect.

23:45 Of magic is being adaptable and nimble. And Lastly is also Using instinct and intuitive and on the

23:56 Logic. Side. The hardest things from a culture perspective in my mind is to build a greater good mindset where you bring people together towards a purpose. They're in service of something. And we built a culture with everyone in mind that we wanted To build a powerful franchise. We wanted consumers to love us, to believe in us. At its essence, that's what great grants do. People have belief in them. And so many companies work in silos, right? They build things that are literally called divisions. Yes. Right? Rather than figuring out the integration. The reality is that

24:37 larger companies. They don't have the right people with the right mindsets. You need an entrepreneurial mindset. You can't just create a new projects division within a company. And the reality is That most of the people in these large companies. Perhaps not the CEO. Or the number two, but often yes. They have grown up in this company or grown up in the industry. So they

25:05 are used to a certain way of working. They want to meet their plan. They want to get their bonus. They want to go on vacation when they want to go on vacation. They won't speak truth to power because they don't want to jeopardize their jobs and they may not want to work twenty-four-seven and so many companies Whether it's American Express. Thirty years ago under Kent Channel.

25:30 Or Disney, um they have to be reinvented. Yeah. You gotta Throw it up. In the air. And it's not a surprise to either of us.

25:40 You know, when you talk about a founder, sometimes the second generation built it and the third generation ruins it. Right. And while they may not ruin it. among very large companies. When you have scale and you have Process and you have Protocols and it's very tough to move things.

25:59 Lou, uh coach is having a real moment with Gen Z right now. It feels like every couple of weeks I see some news where where coach is breaking through, where it's popping on TikTok. What is it like not being in the business day to day, but being so inextricably tied with coach, seeing what's happening with the brand right now? It's very rewarding for me, particularly because I know the leadership team and I know their values. And The two people who lead coach.

26:28 Todd Conn the CEO and Stuart Vivas. both of whom I recruited. are not only very good people, they feel that stewards of the brand. They feel they have the temporarily in charge of the brand and that it belongs to The investors it belongs to the employees. It belongs to

26:52 the community that uses it and as stewards of the brand They have really. leaned into the zeitgeist and are very forward minded. And for me, seeing coach

27:07 reach all time highs. Uh we're in our ninth decade now. And under my watch. We peaked at twenty billion dollars in market cap. And it took Ten years after I left to get

27:21 Back. Yeah. and surpass us. So I can honestly say that Coach is truly a legacy brand. It lives in the hearts and minds Of consumers and can withstand the ups and downs of times. It will be here in the next century.

27:40 Well it feels like the companion to magic and logic is tradition and innovation. There's a real legacy there and also not a fear of of of trying new things. Yeah. And understanding your DNA and uh So um wildly proud of the team and

27:59 Love the product that's coming out. Since my retirement, I've not been As engaged as I have been since Todd became CEO now six years ago. I I'm also just struck, Lou, by the extent to which your principles run through your career, both in terms of the decisions you make about where to go work and what to do and how to approach the work, but

28:20 Ed Cotch passes you over for a job that you're passionate about doing in your public service because you're too principled. Sarah Lee's asking you to do things that you just don't think are right and you don't you don't do them. What's the advice you're giving to people who are coming up in their careers about when to tow the company line and do what they're asking you to do and when to stick to your guns? It depends on where you are on your journey and where you are On Maslow's hierarchy. If you're in a place where you are fortunate enough

28:53 To have discretion. I encourage people Two Be mindful. of working. Where they're looking to work. So I

29:03 Encourage people to look at Four. organizations, whether it's service Or product. Where you can where you believe in the purpose.

29:13 Second. To look at For a culture. That is affirmative. And that encourages

29:20 Curiosity and openness, something that is not heavily siloed or hierarchical. Where you are able to see people rising. Quickly. If they perform. And look.

29:35 For a boss. Who you believe Can be a mentor. in all areas, but where you can learn from. and who has reasonably high emotional intelligence.

29:49 Because if you don't, you could get into a situation where you don't respect your boss. Do your best to find something that has purpose. Where you can be authentic. That's so important. And while you may not find your best destiny in that first role, there's a much better likelihood that you will feel fulfillment and you will be able to grow and thrive. The book is Batman. It is a riveting and rellicking tale. I encourage everyone to pick it up.

30:26 Lou, thank you so much for being on Masters of Scale. It's been a joy. Masters of Scale is a Wait What original. Our executive producer is Eve Tro. Senior Supervising Producer is Trisha Bobida. Associate Producer is Masha Makatanina. Video editor is Noah Walstein. Senior town executive is Stephanie Stern. Mixing and mastering by the audio boys, Aaron Bastanelli and Brian Pew. Original music by the legendary Ryan Holiday. Our head of podcast is Le Tal Malad. Visit masters of scale dot com to find the transcript for this episode. And to subscribe to our newsletter.

31:09 And Be sure to check out her YouTube channel.