In a recession, the poor get poorer, and as Merrill Lynch study today suggests, the poor get poorer still, which has forced Coach Inc. (NYSE: COH) to make big changes that are helping to separate it from other luxury brands.  This has implications for the likes of Tiffany & Co (NYSE: TIF).

According to the Merrill study, the world’s rich lost 20% of their wealth last year. The number of people with more than $1 million in net assets fell 14.9%, below 2005 levels. The number of uber-rich — those with net assets worth $30 million or more — fell by 25%.

Faced with those statistics,  what do you do if you’re a company like Coach that depends on a wealthy public ready to shell out $250-plus for its accessories?  You turn to Poppy, its lower-priced line of handbags, which officially debuts this week. If you can’t sell expensive totes to the wealthy, it only makes sense to broaden the potential market.

And that’s precisely what Coach has done. So far, pre-orders  are reportedly strong, and early mall uptake has been rapid. Anticipation of its success, along with strict inventory management, has aided Coach’s share ascent over the past three months.

Compare Coach’s approach to that of Tiffany & Co (NYSE: TIF), the luxury brand to which it is often compared. Tiffany appears to be trying to simply protect margins where it can, as it continues to see declines in same-store sales.

The comparison is admittedly unfair.  It’s much tougher to make big inventory and product changes when you’re in the diamond business. There’s simply no way for the company to revamp quickly to take advantage of market trends the way that Coach can.

But investors might not care about a fair comparison if Tiffany continues to face constrained demand, high input costs, and no easy way out. They’ll simply vote with their shares.

More may be voting “yea” for COH and a “nay” for TIF.

Mike Tarsala
June 24, 2009

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