Operating Strategies Case Study: Coach Inc.
The world luxury goods market was worth over $105 billion in 2005. Italian, French, Swiss and US luxury goods companies dominated the market and shared 27%, 22%, 19% and 14% of the industry sales respectively. The industry was expected to grow 7% in 2006. The growth of the industry was attributed to increasing wealth in Eastern Europe and Asia and changing buying habits in the US. Traditionally, the industry customers were from the top 1% wage earners. There was a growing desire for luxury goods by the middle-income consumers.
Coach created the accessible luxury category in women’s handbags and leather accessories by ...view middle of the document...
Their profit margin, measured by profit over sales, kept growing from 31% to 34% and then 38% in 2004, 2005 and then 2006 respectively.
Going into 2007, Coach planned to sustain its impressive growth through monthly introductions of fresh new handbag designs and addition of retail locations in the US, Japan and rapidly growing markets in Asia. Other growth inactivate included strategic alliances to bring the Coach brand to such additional luxury categories such as women’s knitwear, fragrances, watches, footwear, eyewear and sunglass.
Giorgio Armani, Dolce & Gabbana and Gianni Versace also launched new accessible luxury lines. These well-established brands had the advantage of top quality products, recognised image and established distribution channels and customer base. They became stronger competitors of Coach.
Coach’s key strength was its design and market research process developed by Krakoff. It allowed Coach to launch new collections every month according to what customers want rather than designers’ instincts. This core competency had been well developed in the company and competitors could not copy easily. Another important strength was Coach’s strong distribution through its own stores and factory outlines. They were complemented by Coach Web and partners like department stores and duty free shops. Coach’s stores did not only allow them to access their market directly but also made it possible to provide superior customer services that formed part of Coach’s core competency. Top quality product at modest price is a strength but this could be done by competitors as well.
Coach’s key weakness was heavy reliance in US and Japan market. They were lack of presence in other affluent markets like Europe and Middle-East. Compared to other luxury brands, Coach brand awareness was relatively low outside US and Japan. As part of their logo, Coach called themselves as a “leatherware” brand. This could limit their attempt to expand their product lines to other luxury goods such as watches, eyewear, jewellery that they had been adding into their product profile.
The rapid economic development in Eastern European and Asia presented a golden opportunity for Coach to sustain its growth. The worldwide total household number of at least $1million would increase from 8.3 million in 2005 to 10.2 million in 2009. Much of the increase was from Eastern Europe and Asia. In Asia, the Chinese market for luxury goods in particular would grow more rapidly and was predicted to increase to 24% of global revenue by 2014.
Competition was the most significant threat for Coach. Brands of the finest luxury goods also exploited middle-income consumers’ desire for such products by launching “diffusion lines”. In 2006, most leading designer brands had developed sub-brands that retained the styling and quality of the marquee brand and sold at considerably...