To offset that spending, however, HSNi delayed infrastructure investments in its offices and decided to continue to use existing sets for some television programs, rather than doing its usual total refresh.
Meet the Customer Halfway
Before investing a penny, however, CFOs may want to begin with a little research. “A key step in moving from cost-cutting to growth is to talk to your customers about their needs,” Hess says. “How can you help them make money or save money?” Such an analysis may reveal that customers’ needs have changed during the recession; the company that moves first and fastest to meet those new requirements could find a new avenue for growth.
At Coach, the $3.3 billion handbag and accessories company, one of the few advantages of being in the retail business during the recession was the ability to quickly gauge its impact on customers. “You get your report card every day,” says CFO Mike Devine. “You’re able to see in real time how the consumer is operating and responding to the product and the economy in general.” Coach saw traffic into its stores slowing in the fall of 2008, and that December suffered what Devine dubs “the Christmas that never came.”
Coach quickly took action. Having enjoyed several strong years as the luxury-handbag market boomed along with the economy, the retailer had been able to increase its average handbag price from $208 in 2003 to $337 by the beginning of 2009. That price point soon became a liability as the economy soured, however, and customers stopped buying.
Coach sought new materials to use in products and negotiated better prices with materials suppliers. The company’s designers created new bags and accessories that incorporated less-expensive materials, like canvas rather than leather, and launched a marketing campaign around the new line, openly promoting the lower price in e-mails to customers.
By summer 2009, the average bag price had dropped to $289, but handbag sales, which had slipped from nearly 60% of sales to 50%, were edging back to normal. “That really helped reinvigorate growth,” says Devine.
Even as it boosted sales by tinkering with its product mix, Coach still faced another challenge — its two primary markets, the United States and Japan, which together make up more than 90% of the company’s business, remained mired in recession. “We realized that while there were things we could do to affect U.S. consumer spending, we were unlikely to immediately return to 2007 spending levels,” says Devine. “For us to become a growth company again, we were going to need to intensify our focus on international growth.”
As a result, Coach is expanding its presence in China, where it had some $30 million in sales in fiscal 2008 but very little brand awareness — just 8% of Chinese consumers knew about Coach, versus 72% in the United States. When sales in China grew to $50 million in 2009, “we became confident that the Coach brand could really resonate there as China’s middle class grew by leaps and bounds,” says Devine. The company hired more staff locally, increased the number of New York–based staff overseeing the international business, and launched marketing campaigns in China. Coach also bought its distributor in the region. This year, Devine says he expects revenue in China to double.