Coach Inc.: Is Its Advantage in Luxury Handbags Sustainable?
▪ Founded in 1941 by Miles Cahn, a leather artisan, who began producing women’s handbags; simple in style and resilient to wear and tear. ▪ Even after 40 years of business, coach was able to grow at a steady rate by setting prices about 50% lower than most luxurious handbags, adding new models and establishing accounts with retailers such as Bloomingdale’s and Saks Fifth Avenue. ▪ After 44 years of family management, Coach was then sold to Sara Lee, a diversified food and consumer goods producer (acquisition strategy). ▪ Sara Lee left Coach’s strategy and operations intact but by 1990’s the company performance began to decline as consumer shifted preference to a more stylish French and Italian handbags such as Gucci, Prada, Louis Vuitton, etc. ▪ In 1996, there was a change in the management having Reed Krakoff as the new creative director, an ex Tommy Hilfiger designer. He believed that new products should be based on market research rather than on designer’s instincts about what would sell. ▪ Coach then conducted excessive research and held focus groups to ask customers about styling, comfort, and functionality preferences. They found that customers look for edgier styling, softer leathers, and leather-trimmed fabric handbags. These prototypes were tested in selected coach stores for 6 months before announcing the launch. This process allowed coach to launch a new collection every month instead of “2 per year” launch prior to Krakoff’s arrival, making it adopting an offensive strategy to improve its market standing or result in a competitive edge fairly quickly. ▪ The stores were redesigned to complement the contemporary new designs, the factory stores’ appearance were improved. ▪ The factory stores carry test models, discontinued models and special lines that sold at discounts ranging from 15-50%. These discounts were possible because of the company’s policy to outsource production to 40 suppliers in 15 countries. The outsourcing agreements allowed coach to maintain sizeable pricing advantage relative to other luxury brands (outsourcing production line). ▪ Its attractive pricing enabled Coach to appeal to consumers who would not normally consider luxury brands, while the quality and styling of its products were sufficient to satisfy traditional luxury consumers. (Blue Ocean Strategy) ▪ By the year 2000, coach was able to build a sizeable lead in the accessible luxury segment of the leather handbags and accessories industry and made it a solid performer in Sara Lee’s business lineup. ▪ In October 2000, Sara Lee decided to launch an IPO for Coach as part of a restructuring initiative designed to focus the corporation on food and beverages. (Offensive strategy)
Coach’s Strategy and Industry Positioning
▪ Coach Inc. designed and marketed women’s handbags; leather accessories such as key fobs, belts, electronic accessories, and cosmetic case; and outwear such as gloves, hats and scarves. ▪ Licensing agreements (collaborative partnership to achieve product line extension): o Movado Group in 1998 to make coach-branded watches available in coach retail stores. o Jimlar Corporation in 1999, manufacture and market coach’s women footwear. o Marchon Eyewear in 2003, for coach branded eyewear ▪ Approach to differentiation:
o Based on the market research design process developed by Krakoff o Procurement process and its outsourcing agreements also contribute for differentiation and high quality o Voguish image due to monthly new product launch
o It sought to make customer service experiences an additional differentiating aspect of the brand. It also has a Special Request service where customers can order merchandise for home delivery if the particular...