Coach Case

1. What are the defining characteristics of the luxury goods industry? What is the industry like?

There are some characteristics of the luxury goods industry include creative designs, high quality, and brand reputation to attract customers. The luxury goods market can divide to three categories: haute-couture, traditional luxury, and accessible luxury. The haute-couture offers extremely wealthy customers for high end “custom” products. Most tradition luxury goods companies also diffusion their lines in the accessible luxury. Luxury goods demand increase as the income increase. The luxury goods market is driven by the economic and wealth status.

Due to the economic crisis in 2007-2009, the global luxury goods market growth slowdown. Sales in US, Europe and Japan was declined during the economic crisis. However, sales in emerging market including China and India became a key growth driver for the luxury goods industry. It is expectable to have 7.8 percent annual growth through 2015 to reach $350 billion world sales. And, “Italian companies commanded 27 percent of industry sales, while French companies held a 22 percent share, Swiss companies possessed a 19 percent share, and U.S. companies accounted for 14 percent of industry sales.”

2. What is competition like in the luxury goods industry? What competitive forces seem to have the greatest effect on industry attractiveness? What are the competitive weapons that rivals are using to try to outmaneuver one another in the marketplace? Is the pace of rivalry quickening and becoming more intense? Why or why not?

To develop a new luxury goods brand in the market is difficult and has strong competition. Most luxury goods brands on the market have decades’ customer royalty, reputation image and their fashion styles. These would be the strongest forces. Building customer relationship and public reputation image in luxury goods market take several times of repurchasing activities and service experience that isn’t easy for a new develop brand.

The power of bargaining with materials suppliers and manufacturing units would also affect the final product’s competition. By using flexible sourcing from different suppliers and manufactures that help Coach to lower its costs and boost its profit margin.

The competitive weapons that rivals can use include: higher materials and final product quality, fast response for the taste of the customer desires products and precise advertisement for the products and brand image. The competition becomes intense. The growing speed in emerging markets is much faster than in the US, Europe and Japan market that intense the competition.

3. How is the market for luxury handbags and leather accessories changing? What are the underlying drivers of change and how might those driving forces change the industry?

For the change of luxury handbags and leather accessories, China had become the world third largest luxury market in 2010. As the income growth in China, luxury accessory good demand growth. China and India markets were expected to provide the major boost of luxury goods sales because of wealth level rapidly growing. In 2012, there are 2.7 million millionaires and 63,500 individuals had net worth more than 15million in China. Because the great growing demand of luxury that lead the luxury brand such as Chanel, Prada, and Dolce & Gabbana expanding more stores in China. And also, counterfeit luxury goods were estimated sold for 300-600 billion. According to Global congress on combating counterfeiting, it estimated 9 percent of all goods sold worldwide were counterfeit.

4. What key factors determine the success of makers of fine ladies handbags and leather accessories?

1.     High-quality products and manufacturing ability to satisfy customer’s expectation.

2.     Create a fashionable and distinctive design styles products

3.     A clear and cleaver eye-catching advertisement

4.     Designing an aesthetic attractiveness and ambiance store

5.     The multiple retail distribution abilities

6.     The well trained customer service

5. What is Coach’s strategy to compete in the ladies handbag and leather accessories industry? Has the company’s competitive strategy yielded a sustainable competitive advantage? If so, has that advantage translated into superior financial and market performance?

Coach was initially focused on introducing a new design of aesthetic attractiveness stores and customer service training program that rebuild the customer relationship. By using mass consumer survey, Coach was able to design more consumer desire handbag such as edgier styling, softer leathers, and leather-trimmed fabric handbags. Frankfort’s strategy of outsourcing its production to 40 suppliers from 15 countries that gave Coach a huge ability to lower its price beating rivals by 50 percent or more.

The Coach strategy of distribution includes flagship, core retail store, department store, and factory store. The flagship store carries the top price items newest fashion products. The core store offers the most Coach items. Coach’s department store provides the most popular handbags. The price oriented factory stores were increasing about 9 percent between 2007 and 2011. There are about 75 percent of factory items produced specifically for factory store, and 25 percent of the item was overstocked from other stores. According to Coach CEO Lew Frankfort, he believed 80 percent of women’s apparel was bought on sale or in the discount stores.  By increasing factory stores to target value oriented customer that allow the company to maintain profit margin from full price policy in full price stores.

Although the US’s wholesale market become less relevant, the international wholesale market have grown 7.8 percent per year to reach 230 million in 2007. Coach has become more global oriented company and expects to yield good growth rate in the following year.

6. What are the strengths and weaknesses of Coach Inc.? What competencies and capabilities does it have that its chief rivals don’t have? What new market opportunities does Coach have? What threats do you see to the company’s future well being?

Strengths:

·      Product designing is based on market research

·      Contract with high-quality leather suppliers to assure best material supply

·      Outsourcing production to low-cost countries

·      Monthly new products introducing

·      Strategic alliance to bring Coach brand to more additional luxury categories such as watch, footwear, glasses.

·      Worldwide distribution channels

Weaknesses:

·      Factory stores outperformances its full price stores

·      Coach men’s product area not enough

·      Coach does not open store in Europe

·      Outwear and other luxury categories accounts very less percentage of the sale

Opportunities:

·      Rapid growing emerging market such as China and India

·      Strategic alliance bringing more product categories

·      Open up stores in Europe, Latin America, and middle east

Threats:

·      As the increasing of factory store, the brand name might be diluted.

·      European brands’ competition

·      Counterfeit goods market

7. What recommendations would you make to Lew Frankfort to improve the company’s competitive position in the industry and its financial and market performance?

1.     I would recommend Coach to re-examine each store’s location, store’s type and sales performance. According to Coach retail store increased record, the growth of factory store segment was high but it does not reflect on its North America sales growth. By using geographic research data, to decide the store type best fit to the location could boost store performance.

2.     Coach should increase its expansion of stores in emerging market. Entry to a mature luxury market like Europe market is difficult, entering to an emerging market is compared easy. It is important for luxury brand to grow customer loyalty when the market begins the demand of luxury goods.

3.     Investment on market survey and designers for different cultures.

4.     Coach should increase men’s products and men’s shopping area in the store. The image of Coach is always the women’s luxury handbags brand that men do not want to walk into the store. This strategy could change the image and increases men’s product sales.