The recession has hit Coach Inc. (COH), with the retailer planning to offer its iconic handbags at lower prices.

Coach also will slow the pace of its share-repurchase program.

Trying to appeal to "a much more price-sensitive consumer," Coach is reducing prices 10% to 15% for handbags and small leather goods that it is stocking on shelves, said Chief Executive Lew Frankfort in a call with analysts after the retailer posted a 14% drop in fiscal second-quarter net income amid weak sales and margins.

The goal is to sell handbags below $300 by working with vendors to produce the same quality, but bring down costs and pass that savings along to consumers.

"What we want to do is become even more affordable than we have been," Frankfort said.

For Coach, bags and leather goods account for about 85% of annual revenue. The company reported that bag sales fell 6% across all channels in North America.

Coach sells through its own stores as well as department stores ranging from Saks Inc. (SKS) and Nordstrom Inc. (JWN) to Dillard's Inc. (DDS) and Macy's Inc. (M).

Coach's plan to sell bags at lower prices is part of its effort to negotiate between steep discounting that can be especially hurtful to upper-end retailers and selling goods with cachet that customers feel are too costly.

Polo Ralph Lauren Corp. (RL) is another in the upper end that feels strongly about maintaining its pricing strategy.

"At our company the brand is paramount and we will do nothing to compromise that," said Polo Ralph Lauren President Roger Farah at last week's meeting of the National Retail Federation.

But the success of the approach is questionable right now, based on how higher-end retailers have been faring.

Beyond the deteriorating retail environment, "we would attributed relative weakness in traffic and conversion to our deliberate decision not to engage in discounting when virtually the entire mall was on sale," Frankfort said.

Coach had issued a negative preannouncement before Wednesday's earnings release. So too have Tiffany Inc. (TIF), Nordstrom and Estee Lauder Cos. (EL).

Seeing "an on-going shift in consumer spending from aspirational to desperational," Goldman Sachs on Tuesday cut shares of Polo Ralph Lauren to sell from neutral, saying that it felt the company will be the next in its peer group to issue a negative preannouncement.

Unlike upper-end retailers, including Saks and Neiman Marcus Group (NMGA), Coach executives indicated during the call that the company doesn't have plans for corporate headcount reductions.

Frankfort said Coach "is operating from a position of strength. We have made and will continue to make good sound business decisions to position us for profitable growth in the years ahead."

Post-Christmas business has even shown some signs of "stabilizing," Frankfort said. "Unlike our second quarter, where we indicated we saw a worsening situation throughout, that deterioration has not continued into the third quarter."

Coach also said it feels that when the retail market stabilizes, the handbag category will grow relative to apparel and see a larger share of consumers' wardrobe spending.

But Coach remains cautious. Coach has cut planned store openings to 20 from an initial 40 projection. The company also isn't expanding existing stores, Frankfort said.

And, Coach is slowing the pace - not suspending - its stock-repurchase program, he said.

-By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com

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