According a recent earnings release, Coach operates 343 retail stores and 119 factory stores worldwide.  At one time fashion brands used factory stores or outlets to move excess merchandise from their regular stores.  Not so now.  Today, most of the offerings found at factory stores are made specifically for sale at outlets, including 80% of Coach’s “factory” inventory.  The more merchandise Coach makes specifically for the factory stores, the less regular merchandise it liquidates, leading to “significantly higher profitability.” The problem comes when people think they are dealing with a single, common luxury Coach brand.

Some retailers deliberately maintain separate brands for their outlet stores like Nordstrom Rack, Saks Off Fifth, Neiman Marcus Last Call, to help keep brand experience expectations in check.  For example, Nordstrom Rack offers customers a 30 day return policy that is certainly reasonable, but a far cry from the legendary leniency of the flagship Nordstrom return policy.  Others clearly delineate merchandise specifically manufactured for and sold only in outlets.  Brooks Brothers sells a separate “346″ line at a lower price (and some say significantly lower quality) specifically for its outlets, a common practice among retailers including  Ann Taylor Factory, Banana Republic, Gymboree and many others.

Coach, however, deliberately encourages conflation between full price and factory.  On a recent business trip, we had some time to kill before a flight and popped into the Coach factory store in Loveland, Colorado.  Seeing what looked like a “real” Coach design, logo, tags, etc., we picked up a bag.  Andrea Shaw Resnick, Coach’s Senior Vice President of Investor Relations and Corporate Communications acknowledges that the Coach factory stores sell different merchandise but with “the same excellent Coach quality.” Well, maybe not. Two weeks or so after our bag was put into use the, “turnlock” fell off.  Not a big deal, but certainly a defect that interfered with the essential function of closing the bag.

We trotted over a short hop from BrandCulture HQ to Coach’s Century City outpost where we encountered Brianna and explained the failure.  Brianna knew at a glance that we had a “factory bag” and explained that we were in a “full price” store where such a bag “would never be sold.”  To further amplify the point, she pointed out the Coach equivalent of the Scarlet Letter, a tell-tale “F” in the serial number designating “factory.” Accordingly, she would not be able to exchange the bag or issue a refund — even though we presented our original sales receipt.  Brianna did say we could ship our factory bag to Jacksonville Florida (at our expense) where a team of experts would determine within 4 to 6 weeks whether or not the bag could be repaired.

Just when this rigmarole seemed a bit much for a brand new defective bag, Brianna invited us to take a trip from Century City to the Coach factory stores in Camarillo (47.6 miles) or Barstow (126 miles) for a refund.  Returning an item to a Coach factory store is inconvenient . . . by design.  Normally Coach endeavors to locate its factory stores at least 60 miles or an hour’s drive away from the full-priced outlets.  One Coach brand, but two different businesses and very different brand behavior.

Full price Coach never has sales.  Factory Coach always has sales, sales and more % off sales!

Why does Coach do this?  We’re confident that Coach has reams of psychographic, demographic, market segmentation and focus group data — bolstered by the 70,000 customer interviews the company purportedly conducts each year — that show that the bargain-crazed, coupon-addicted factory store customers (like us) and the upscale full price shoppers are distinct cohorts and never the twain will meet.  Evidently Coach believes this is a representative factory store shopper:

. . .  and here are their “full price” shoppers:

Conventional wisdom and even outside experts agree, including Kit Yarrow of Golden Gate University, “Outlet shoppers are less fashion forward and more interested in saving money.” Outside of hard-core outlet shoppers, we suspect this is largely a load of piffle, and the reality is that sometimes people find themselves in factory store settings and sometimes not, and migrate freely between the two retail worlds.  But we’re even more confident that from a brand perspective this operating methodology moves more merchandise, but puts Coach and its brand on thin ice.

This is a dilemma of Coach’s own making, as the company sets a high bar for itself in its Mission Statement.  In addition to asserting that its brand “represents a unique synthesis of magic and logic that stands for quality, authenticity, value and a truly aspirational, distinctive American style,” Coach borrows a play out of the Lexus Covenant, in asserting that all Coach customers will be treated “like guests in our own home.”  You don’t see Toyota promising this for Camry and Scion owners.  In reality, the standards of hospitality among Coach’s 12,000 employees evidently differ considerably for factory store guests vs. those of the full price stores.

Coach makes bags and accessories — $3.4 billion of them over the last year.  But its business is its brand.  That’s what enables Coach to earn a gross margin that is not only among the very highest in the industry, but one that frequently approaches and even surpasses 80% (consider that when making your next Coach impulse purchase).  With margins like these, Coach should consider investing a few bucks in a seamless brand experience to mollify factory-shopping slack-jawed bumpkins such as ourselves who inadvertently stumble into a “real” Coach store.  Alternatively, instead of promising a common standard of quality and courtesy across its portfolio, create a more deliberate and explicit brand architecture with a “Coach Lite” brand (like Nordstrom Rack) where shoppers can still have the signature Coach C’s on their arms without quite the same expectation of quality or of a luxury brand treatment.  Either way, with an asset as valuable as the Coach brand, we suggest that Coach take care not to stretch the elasticity of its storied brand past the point of fracture.

In the meantime, if you’re heading out to Barstow will you swing by and pick up our broken Coach bag?

There a few activities in life less rewarding than waiting for the cable installer.  Waiting for phone service is a close second.  This time, however, Verizon offered speedy, friendly and fast service while setting up our new office phone lines. Not only did we have a dedicated representative we could contact via email at any time, Verizon even followed up by phone as well. They made the process infinitely more simple and convenient than our prior interactions with at&t, which featured the customary rigmarole of long hold times and inexplicable ping-ponging among different departments. Verizon was refreshing and our customer service representative, Chandra, was a perfect brand ambassador:  competent, polite and above all, efficient.

Napoleon Bonaparte noted in 1795 that an army travels on its stomach; so too does a brand-building strikeforce.  To help with the packing and unpacking, not to mention the settling in to new surroundings while simultaneously delivering exceptional client service, we commandeered a smorgasbord of sandwiches from the Corner Bakery.  Delicious!  Nutritious!  Attractively packaged!   And even giving a hoot whether or not we enjoyed the meal.  A few hours after we picked up the catering order for our office, a Corner Bakery rep called HQ to make sure everything was satisfactory with our order . . . and to see if they could help us with any other services for the rest of the week. We were impressed with their care for customer satisfaction — along with the appropriate, but tasteful cross-sell of future sandwiches.

Every new office needs new furniture.  That’s where CB2 comes in.  Although our taste runs more to Saarinen and Eames, our current TI budget is, well, less than Kozlowskian.  Happily, CB2 the younger, hipper sibling of Crate&Barrel, provides a reasonable simulacrum of high-end mid-century design at a price point that is decidedly less than princely.  Nikki, who assisted us with our sale at CB2′s Sunset Boulevard store could not have been more helpful or willing to work within our more modest means (in stark contrast to our recent experience at Heath Ceramics), outfitting the plupart of our new digs in short order.

And as surely as sunshine leads to sunburn, crumbs follow sandwich mastication.   To tidy our new carpet, we ordered a vacuum at BestBuy.com and went to the store to pick it up.  We’ve previously extolled the virtues of Best Buy’s “Results-Only Work Environment,” but we were even more excited to experience it in action.  Not only was the vacuum ready and waiting as promised, we were in and out of the store in approximately 5 minutes. After we picked up the order, we received a follow-up email inquiring as to our level of satisfaction as well as a solicitation for feedback to improve it.

Do four positive brand experiences a trend make?  Time will tell.  Nothing about them was earth-shatteringly innovative or even extraordinary, but they were notable in aggregate because of their collective competence — that they delivered in full on what they promised.  We take it as proof that sometimes saying what you mean, meaning what you say and following through is all a brand needs to rise above the rest.

At BrandCulture Company, we have been seeing and are helping clients take advantage of a desire among consumers to shift their purchasing decisions back to smaller, local businesses. During the 80’s and 90’s, the Coca-Cola Company grew immense global market share with its “Think Global, Act Local” philosophy, but found that it became increasingly disconnected from its local bottling partners and customers.  In the beginning of the last decade, Coca-Cola began to evolve its go-to-market strategy with a “Think Local, Act Local” philosophy.  Coca-Cola continues today with its local community through its “Live Positively” campaign and Virtual Community Center .

Today, ‘buy local’ campaigns have emerged in cities ranging from Santa Clarita, California to Boston, Massachusetts – localized efforts to tap into consumers’ sense of place and home.

The “Move Your Money” campaign, while emanating from a populist dissatisfaction with mega-banks’ influence, also taps into this sense of local community.  Interestingly, among “Move Your Money” targets is Bank of America, a company that has attempted its own localized community focus, with community message boards and support of community arts.

But walk into a Bank of America branch and finding a banker that can actually do something for you is another story.  Instead of a real community focus, Bank of America’s sophisticated technology infrastructure supports a network of faceless banking professionals interacting with customers, cutting off their credit while charging extraordinary services fees. Its no wonder the Bank of America Community Message Board in this blogger’s local branch is nearly empty.

“Move Your Money,” we will follow with interest your effort to use consumer choice to spark a redistribution of power from big banks to community institutions. But let’s not forget that while local presence is important, what matters to consumers above all else is that the products, businesses and financial institutions that they choose deliver what they promise.

But first, a confession.  Despite the life of genteel poverty that the noble profession of brand-building entails, among the BrandCulture team I developed a weakness for high-end hotels back when living a different and more remunerative life of advocacy in the legal profession.  Although regrettably not as frequent a habitue of  luxury lodging as the Wall Street Journal’s “Finicky Traveler” Laura Landro, to kick the year off on the right foot I snuck in a visit to the Four Seasons Aviara Resort in North San Diego, just a few short hours south of BrandCulture HQ .  Upon arrival I headed straight to the golf course with no reservation or other advance warning where Adam, one of the pros at the course, looked up from the till and greeted me by name with a warm welcome back.  Ever since Dale Carnegie pointed out in 1936 that there is no “sweeter sound” to anyone than that of his or her own name, it has been a no-brainer for any restaurant, hotel, recreational facility or business that interacts with the public to greet returning guests individually.  But this is not a small resort.  Aviara has 329 guest rooms and 240 villas spread out over 2,000 acres of land.  It has 78,000 square feet of meeting space, and regularly hosts conferences with up to 1,000 attendees.  In a high-end 300 room hotel, Barbara Talbott, the former EVP–Marketing for Four Seasons posits that guests and staff interact in aggreate over 5,000 times a day (with 5,000 times to make a positive impression, or the converse)!  The astounding aspect of my interaction with Adam was that I’d last darkened the door of the clubhouse over seven months earlier during which interval Adam undoubtedly greeted hundreds if not thousands of other golfers.

Dumbstruck, I couldn’t decide if Adam was some sort of  megasavant, if I was legendary for breaking the Tin Cup course record for number of balls hit into the water on hole #11 and the staff inexplicably had hung a photograph of me in their breakroom (like the employees of Harrah’s did with Terrance Watanabe) or if the winged chariot of time had simply transformed me into a dead-ringer for Ichabod Crane who stood out from all other guests.

After completing the round, I headed off for dinner at Vivace, the resort’s Italian restaurant, where I was coincidentally greeted by the same woman who had served me dinner seven months earlier.  “I remember you,” she noted and proceeded to bring over unasked the restaurant’s “secret” wine list that includes some California and other New World wines, recalling my intimidation with the restaurant’s regular wine list that features exclusively wines from Italy (I’m becoming less afraid thanks to reading the book Vino Italiano:  The Regional Wines of Italy where I’ve learned that Italy produces more wine than any other country).   But I find it unlikely that was the only hayseed rube in over seven months who couldn’t handle the gravitas of the Italian wine list.  Back to the Ichabod Crane theory.

And then . . . the final astonishment came at the Kids for All Seasons center, a program that provides a full day of activities and professional supervision for children for a cost of . . . absolutely nothing!  Providing free childcare so that parents can enjoy (i.e. spend money) the resort is a brilliant business strategy.  The Four Seasons forgoes the incremental $75 or so other resorts like The Phoenician and the St. Regis Monarch Beach collect, but their guests not only spend multiples of it on other resort services, they feel great about getting something for free!  (For more on how “FREE” can cloud rational decision-making, see Chapter Three of Dan Ariely’s book Predicably Irrational).  In any case, two workers staffing Kids for All Seasons looked up at the two children I’d brought (again with no reservation or advance warning), thought for a moment and casually proceeded to identify them by name . . . again after a seven month hiatus.  Short of the kids recapitulating The Ransom of Red Chief during their previous visit, I can’t imagine how they could have plucked the kids names out of the ether.  A mnemonic can work to remember a name for an afternoon, but not seven months and hundreds of children.  What makes this feat even more extraordinary is the fact that at least one of the staffers was a part-timer who is a local student who has not yet completed high school.

This level of hospitality, dear readers, cannot be forced no matter how comprehensive a property’s “Standards of Service” manual might be.  It can’t really even be institutionalized, it can only be inspired.  Why?  Because it requires a level of human engagement and interest that can’t be coerced or faked.  With sufficient staff and the right incentives, people can be taught to run out to greet a car within 30 seconds of pulling into the porte-cochere or say “good morning” when a guest passes within seven feet of a staff member (all Four Seasons standards, by the way); what can’t be taught is whether the people working at the resort actually, genuinely want their guests to feel like they are all VIPs.

Although travel writers and pundits rank resorts like Aviara on the quality of their facilities, amenities, sheets, beds that are more comfortable that Oprah’s own, 24-hour room service and whether there is a telephone in the bathroom (!), those are of course the far easier part to replicate — all they require is money (admittedly in much shorter supply these days) and upkeep.

It is the Brand Culture (pardon the expression) of not only giving a damn, but giving more than a damn that keeps the Four Seasons on top.  Best of all, unlike the stunning floral displays, acres of marble, top quality food ingredients, HVAC, and all the other hard costs of running a hotel, giving more than a damn doesn’t cost anything extra.  Restaurateur Danny Meyer points this idea out in his book Setting the Table:  ” . . . the hug that came with the food made it taste even better! That realization would gradually evolve into my own well-defined business strategy — the core of which is hospitality, or being on the guests’ side.”

The Four Season’s founder Isadore Sharp understands this as well and, as he details in his book Four Seasons: The Story of a Business Philosophy.  Mr Sharp built one of the world’s most valuable brands basically with slight variation on two biblical admonitions:  (1) treat everybody well, regardless if they are a potentate or poet (or golf hacker/brand-builder), i.e., the Golden Rule and, (2) the last shall be first, i.e., empower the front line/last mile — “the least motivated people . . . had to come first” because “they could make or break a five-star service reputation.”

Simple enough in theory, but devilishly difficult to pull off.  People often bring unreasonable expectations — some might say delusions of grandeur — to luxury lodging.  We’ve all encountered folks who book the cheapest room and demand the most sybaritic suite (I’ve checked in along side them a time or two).  And you sure can’t make everybody delighted all of the time.  But at Aviara at least, the resort’s managers appear to be “keeping their egos in check and let[ting] the people who work for you shine,” as Mr. Sharp admonishes.  The results are remarkable from the charismatic Surf Concierge to the winsome high school student providing childcare.

Given the still brutal hospitality market and the crushing debt service Broadreach Capital Partners faces on the underlying Aviara asset, it is unclear how long Aviara will stay a Four Seasons.  During the well-publicized kerfuffle last spring, Broadreach tried to oust the Four Seasons and install its own Dolce Hotels and Resorts as the property’s manager by changing the locks on the executive offices in the wee small hours of the morning.  The Four Seasons responded with barriers and checkpoints while contending it has the right to manage the property for at least eighty years.   Broadreach may find itself between the Scylla and Charybdis of Oscar Wilde’s admonition that “In this world there are only two tragedies.  One is not getting what one wants and the other is getting it.”

Aviara’s physical setting and facilities are undeniably magical.  But the people and the Four Seasons Brand Culture, not all the trappings, are what keep its brand in a category of one.

Aviara Update:

On April 20, 2010, the Arbitration Panel decided that following a payment of compensation from Broadreach, “both parties contributed to the demise of the business relationship between the parties and that the Hotel Management Agreement should be terminated and a transition implemented in accordance with a transition plan between the parties.” Hyatt took over management in of Aviara June, 21 2010.

For those unfamiliar with Heath Ceramics, it is the echt purveyor of beautiful artisan ceramic dinnerware, tile and accessories — pieces that are as functional and durable as they are visually appealing and sensuous to hold.  A California institution since 1948 (according to the Heath Ceramics logo) or 1949 (according to the website copy), for at least half a century Heath ceramics has fired clay in Sausalito to grace tables as modest as our own and as grand as those of  Chez Panisse and the Four Seasons.

After much deliberation selecting an array of items ranging from salad bowls to bud vases we thought were closely aligned in type and hue for our intended recipients, we happily arrived at the register with nine separate gifts to be purchased and packed.  It was there that we were informed that it was Heath Ceramics policy to provide one box for every $200 in purchases; because our total purchase was “only” about $1,100, we would receive five boxes and could purchase additional packaging for $5 each.  We protested to the sales associate that surely she could find it in her holiday heart to throw in four more boxes gratis — representing a value of 2% of our overall purchase.  Our entreaty was met not with a “yes, absolutely,” a “sure” or even a begrudging “ok,” but by a question of whether we would try to negotiate something for free if we were shopping at Crate & Barrel (an incoherent comparison to us insofar as Crate & Barrel provides free gift boxes with all purchases). We then appealed to the store manager, who reiterated the policy with equal intransigence and informed us that they were “really being more than fair” in providing five free boxes, and that we could imagine “how crazy it would get” if they wrapped up all our purchases for free (a puzzling assertion too as we were the only customers in the store).  The policy was particularly inexplicable because the company’s website currently (through December 31, 2009) offers “Free Shipping” on any order over $75 — which by definition would include a box and packaging!

The Heath Ceramics wrapping policy is isn’t just bad business, it’s bad branding.  Of course we wanted our gifts to arrive in one piece and wanted them packed properly.  And though it is always the thought that counts in gift-giving, presentation matters too.  Besides, we also wanted our recipients to know where the gifts came from and how we had come to select them — how we had attempted to find gifts somewhat more personal than Starbucks Gift Cards while at the same time attempting in some small to support a California economy currently suffering from a 12.5% unemployment rate.   The right wrapping and packaging can add immeasurably to a gift’s impact, and indeed, the practice of wrapping gifts first came into widespread use during the Great Depression during the 1930s when the gifts themselves were by necessity more modest.

Most retailers understand these motivations — and their brand-building potential — implicitly.  Free wrapping isn’t limited to high-end retailers like Barney’s, Neiman Marcus and Nordstrom, but also at your quotidian Barnes & Noble and Borders.  Whether purchasing a $95 silver key fob or a $1,000,000 engagement ring, every customer receives a complimentary, iconic Tiffany & Co. blue box, tied with a bow that miraculously has no knot (it would wrinkle the ribbon) that takes intensive training and hours of practice to master.

The Heath Ceramics $200 Per Box Policy is the precise opposite of the spirit of giving:  if you’re too cheap (or impecunious) to spend at least $200 a gift, you don’t deserve to have it beautifully presented –  or even protected from breaking on the ride home.  Now Tiffany’s gross margins are 57% (!), allowing considerable room to provide free boxes and ribbons.  But don’t forget, Tiffany sells diamonds; Heath Ceramics sells dirt (albeit very pretty baked and glazed dirt); both come from the ground, but the former by any calculus offers a considerably higher cost of goods sold.  Heath Ceramics is a private company and we can’t find out their margins, but we presume that there might be some room in the overall budget to provide a box for a $150 bowl, even if it fails to meet the $200 threshold.

And in the end, of course it wasn’t the extra $20 that mattered, it was the utter lack of reciprocity we felt from everyone we encountered at Heath Ceramics during the purchase process — that they didn’t care a whit about losing a $1,100 sale over four cardboard boxes and some string.  But just because Heath Ceramics didn’t care about our business doesn’t mean that we were entirely without alternatives.  We left our bowls and bud vases on the counter and ended up across town at Design Within Reach.  Brittany (who had an MS in Decorative Art from Parsons) helped us find some perfect gifts, including some fantastic cutting boards very similar to some we’d eyed hanging on the wall at Heath Ceramics.  And she wrapped and packaged each gift with alacrity . . . gratis.  From now on, we’ll leave Heath Ceramics to their myriad fans from The Slanted Door and Auberge du Soleil, inter alia.  Next year we’ll start our holiday search at DWR.