Coach's merchandise is sold through Coach stores, factory outlets, department and specialty stores, duty-free locations in airports and online. Coach Inc. has two business segments, Direct-to-Consumer and Indirect. Over 85% of the company's sales are generated by its Direct-to-Consumer segment, with the majority of the sales coming from handbags and accessories.
Coach markets its products as "accessible luxury." Its pricing strategy for a handbag ranges from $298 to $1,000, which means that its product reaches a larger consumer demographic than other high-priced competitors such as Louis Vuitton and Prada which focus on the very wealthy. The strategy of targeting the higher and upper middle income shoppers differentiates Coach from its competitors and also helps to establish it as the poster child of tapping into this global trend of consumers wanting to trade up in the quality and style of what they buy.
As Warren Buffett said, "In business, I look for economic castles protected by unbreachable moats." Coach Inc. has a narrow moat and a competitive advantage. It has a strong brand presence in the luxury market, not easily eroded by other competitors. New competitors in the luxury brand industry would have to spend a large amount of money and resources to build up competitive brand awareness and image. Coach also has consumer loyalty as it has been delivering high-quality products that are simple and reliable, with a perceived value.
To further grow the business, Coach has outlined its strategy as:
1) Raising its brand awareness and market share in the under-penetrated Asian market with China being the top targeted market
2) Growing its women's business in the North American and European markets
3) Increasing its men's business in North America and Asia
4) Maximizing e-commerce sales
SWOT Analysis
Strengths
Core Competence in design and merchandising: Coach has over 70 years worth of design archives to assist it in producing products for each season. This long history in the handbag/accessory market gives it a competitive advantage as it has a vast amount of previous designs to build off of when producing products for each season. This long company history has also given the merchandising team strong experience in developing consumer research capabilities and given it a keen sense of what its target demographic wants.
Multi-tiered pricing strategy: Coach’s product is classified as a "luxury" item but is accessible to a larger market due to the variety of price points that the company offers. These include high end retail and department stores as well as the cheaper factory outlets. Analysts have noted that this tiered pricing strategy is not common in the luxury goods industry, which on average has higher entry-level price points than that of Coach. This pricing structure allows the company to attract affluent consumers while also providing lower-income consumers access to a brand they would not be able to afford otherwise. Throughout the recession this has kept overall sales numbers stable though it has caused margins to dip.
Established brand name: Brand names are what allow companies in the apparel industry to de-commoditize clothing/accessory products and extract premiums from the market. Throughout its history Coach has developed a reputation for providing its customers both quality and value. This has helped the company establish a following of consumers that buy Coach products exclusively.
Lots of cash and almost no debt: Coach has a strong balance sheet which allows it to finance its operations internally. This is a huge boon to a luxury brand business in a recessionary economy and provides it with a strong financial competitive advantage as luxury competitors’ may not have access to such financing. This cash advantage allows Coach to expand without the need to rely on currently expensive (or unavailable) leverage.
Weaknesses
Geographic concentration: Coach currently relies on just the U.S. and Japan for 97% of its sales and it may be difficult to expand this limited geographic reach.
Coach is very limited in its expansion possibilities. Europe is entirely dominated by the elite European luxury brands while there is not yet a market for luxury items in many emerging markets. This leaves Coach with expansion potential in its existing markets: the U.S. and Japan. However, these markets are beginning to saturate and it may be risky to further expand in these markets in this economic environment. China is the major new market that Coach intends to expand in and this will be an extremely competitive expansion as the elite European brands will also enter the Chinese market.
Declining margins: Coach is experiencing declining margins on its products. This is primarily due to the economy’s impact on luxury brand purchases which has caused sales at its factory stores to increase as more consumers seek bargains. Coach has been relying on sales at its lower price points and though net sales have remained steady the margins have shrunk from 36.1% in fiscal year 2008 to 30.1% in fiscal year 2009. This is a troubling trend for a luxury company that relies on its brand to produce superior margins on its sales.
Opportunities
Expansion in the U.S., Japan and China: As previously mentioned Coach’s sales take place predominantly in the U.S. and Japan. The company’s CEO feels that, while the company has 330 stores in North America, that this market can support up to 500 stores. And while there are currently 155 Coach locations in Japan management believes that the Japanese market can support a total of 180 stores. With the rise of China’s middle and affluent classes the Chinese market has become increasingly important for luxury brands such as Coach. Over the next 5 years Coach plans to open a total of 50 retail locations in China and increase its market share from 3 to 10%.
Threats
Luxury brand susceptible to recessionary environment: Retailers have had to weather a HYPERLINK "http://www.wikinvest.com/wiki/U.S._Economic_Cycles" \o "U.S. Economic Cycles" difficult economic environment since 2008. Consumers are unsure of their financial security as companies have resorted to laying off workers in an effort to cut costs. In an uncertain economic environment consumers seek to cut costs and save as much money as they can, and clothing is usually the first to go. Luxury clothing and accessory items, in particular, have been and will be affected the most in this New Normal economic environment.
Brand dilution: As a luxury retailer, Coach heavily relies on an image of exclusivity to fuel interest and sales of its products. A luxury company can lose its allure if the brand becomes too popular or too accessible. Coach risk’s losing this luxury status by selling through its factory outlet stores. This cheaper sales channel makes Coach’s product available to a different target demographic than Coach’s traditional luxury consumers. This accessibility to a lower end market may put off Coach’s high end consumers who value the exclusivity of the brand. In the long run this brand dilution may negatively impact both Coach’s margins and its brand image.
Four P's
Place:
Coach primarily operates in the United States, Japan, and East Asia. There are approximately 190 Coach stores in the United States. Of these stores 120 are retail and the rest include factory outlets, catalogs, and an online store. Outside of the United States 175 Coach stores are spread in 18
countries.Product:
Coach Inc. is an American designer of handbags, leather goods, outerwear, travel
goods and accessories for men and women. Coach has been in existence for 64 yearsmaintaining the strongest brand in affordable luxury.
Price:
Coach price range from $100 to $500.00 US dollars
Promotion:
Coach has great success because of the strength of its brand. The brand has three
brand equities: Product innovation, Relevance and Excellent value. Product innovation
is implemented by designing fresh, stylish new products consistently. The company
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