In 1941, Coach Inc. was founded in a loft located in Manhattan, New York. Inspired by the baseball glove, it was the driver behind the soft, yet strong and durable leather. Not until the 1960s did Coach start manufacturing handbags when they introduced their first collection which consisted of 12 different styled bags. Then in 1985, the company was acquired by Sara Lee Corporation. Following this acquisition fifteen years later, Sara Lee Corporation decided to spin off Coach through an initial public offering in 2000 to focus on its food and beverage industry (Wikinvest, 2008). 1. What are the defining characteristics of the luxury goods industry? What is the industry like?
The definition of a luxury good is a product that gives great ease and comfort. It adds pleasure or comfort, but is not absolutely necessary (Merriam-Webster, 2008). Some characteristics of the industry include superior quality, brand recognition, and is said to have high income elasticity of demand. As people become wealthier, they tend to buy more luxurious items. However, this also means that as the wealth declines, as does the demand for these items. The luxury industry can also be looked at as a status symbol. Conspicuous consumption leads to increasing demands for luxury good items and it is a growing industry with the global luxury goods market growing 9% per year (Business Wire, 2007). Advertising has a lot to do with it, especially Americans who are being constantly bombarded with advertisements on a daily basis. While finding exactly how many advertisements American see a day is nearly impossible, some studies have shown the number to be between 150 and 3,000 (Mortar, 2006). This leads to more consumers being exposed to or being told which items or brands are luxury goods, but unlike the definition for luxury goods, these conspicuous consumers buy their products for satisfy their self-esteem issues rather than for ease or comfort. Although an argument can be made is that satisfying their self-esteem issues puts them at ease or gives them comfort. The luxury goods industry is under drastic change and at different levels. This has an impact on Coach’s business because they have two different types of stores. On one hand they have factory stores who sell at a discounted price and on the other hand they have full-priced stores or flagship stores which cater to higher end consumers. While the factory stores are being hit by the American financial crisis (The Economist, 2008) due to the lack of disposable income for the middle class, full-price stores or flagship stores have brighter future with an increasing number of millionaires. HNWIs (more than $1 million, in 2006)
Percentage of regional population
Sources: Wikipedia 2008
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?
For Coach with its split personality, the competition in the luxury goods industry is half intense and strong. Competition is fairly strong, but not intense at the high end level for full-priced stores and flagship store. There continues to be an increase in wealth and growing demand in emerging markets which makes competition less fierce. The demand for luxury goods in emerging markets continue to grow specifically in countries such as China and India due to the growth of the middle class (Market Wire, 2006). With the growing demands for luxury goods of the two most populous countries in the world, industry members should be satisfied enough not to launch any major...
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