Case Position Paper B - Coach Inc. - by Henrik Müller
As the case is from 2006 the company was probably facing some issues between 2007 and 2010. Luxury goods are usually one of the first market segments to decline in case of an Economic downturn / crisis. However, the fact that Coach Inc. is a lot cheaper and therefore have a broader customer base than most of their competitors, they are probably facing less financial problems than them and might therefore be able to keep or even further improve their current market share.
In recent years, the number of wealthy households, especially in Eastern Europe and Asia increases at a high pace. With an increase in total households with assets of more than $1 million by 7 %, this number has been expected to rise by another 9 % in 2009, reaching more than 10 million households all over the world. This of course increases the demand for luxury goods in those emerging countries. China for example is expected to be the world's largest market for luxury goods in 2014 if they keep their current pace of growth. These new markets offer great opportunities for Coach Inc. to increase their global brand awareness, sales and market share while further increasing their total number of especially full price stores, which is their main focus compared to wholesale and factory outlets.
The world is aging as birth rates decrease and medical progress helps increase the average age a person reaches in its life. This means that the potential market for luxury goods is growing as well since the average customer for Coach's products a 35-45 year old, college educated, professional female. Also, there's a trend towards two income households and a change of buying habits of mid income consumers, who seem to be more interested in luxury goods through effective advertising. These facts present promising opportunities for Coach Inc. to grow.
1.2 Competitive Environment
Competitive Rivalry within the Industry
For an American company the economic environment in the luxury fashion business can be a tough a market. Due to the fact that many fashionable people prefer the European style of luxury goods from competitors like Prada, Versace and Dolce & Gabbana; Coach Inc. has to offer other incentives to be successful in this market. Ever since Coach Inc.'s foundation, the strategy was to approach the market with outstanding quality but at the same time affordable prices and great service. While the quality of their goods, match the quality of their competitor's products, they are offering them at prices that are up to 50 % lower than those of their competitors. In surveys about customer service, they scored just as high as the competition. Lately, some brands have launched accessible sub brands like D&G, Emporio Armani and Versus (by Versace) to appeal to a customer base that is not willing to pay the high prices of the main brands. 1.2.2
Threat Of Substitute Products
There are two major kinds of substitute products that pose threats to Coach Inc. One of them are (leather) handbags and other accessories that are not in the luxury segment of this female fashion industry. Especially in rough economic times, sales of luxury goods are the first ones expected to drop and while people might still need to fulfill their need of buying handbags or accessories, they might be less eager to spend it on high-end luxury goods. Another product group I would classify as substitute products are counterfeit items. Profit margins on fake brand products are enormous and therefore very tempting, especially in emerging economies where laws on counterfeit merchandise are not very strict compared to the United States. These fake products can be toxic for Coach Inc. in several ways. They lose some of their sales, as some people might not want to spend the high prices and most...
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