Coach Inc.: Is Its Advantage in Luxury Handbags Sustainable?
case teaching note 8 Coach Inc.: Is Its Advantage in Luxury Handbags Sustainable?
Overview
In the six years following its October 2000 initial public offering (IPO), Coach Inc.’s net sales had grown at a compounded annual rate of 26% and its stock price had increased by 1,400% as a result of a strategy keyed to “accessible” luxury. Coach created the “accessible” luxury category in ladies handbags and leather accessories by matching key luxury rivals on quality and styling, while beating them on price by 50% or more. Not only did Coach’s $200 - $500 handbags appeal to middle income consumers wanting a taste of luxury, but affluent consumers with the means to spend $2,000 or more on a handbag regularly snapped up its products as well. By 2006, Coach had become the best-selling brand of ladies luxury handbags and leather accessories in the U.S. with a 25% market share and was the second best-selling brand of such products in Japan with an 8% market share. Beyond its winning combination of styling, quality, and pricing, the attractiveness of Coach retail stores and high levels of customer service provided by its employees contributed to its competitive advantage. Much of the company’s growth in net sales was attributable to its rapid growth in companyowned stores in the U.S. and Japan. Coach stores ranged from prominent flagship stores on Rodeo Drive and Madison Avenue to factory outlet stores. In fact, Coach’s factory stores had achieved higher comparable store growth during 2005 and 2006 than its full-price stores. At yearend 2006, comparable store sales in Coach factory stores had increased by 31.9% since year-end 2005, while comparable store sales for Coach full price stores experienced a 12.3% year-overyear increase. Coach’s dramatic growth that resulted from its strategy keyed to “accessible luxury” had not gone unnoticed by long-established luxury goods makers. In 2006, most leading designer brands had developed sub-brands that retained the styling and quality
Overview
In the six years following its October 2000 initial public offering (IPO), Coach Inc.’s net sales had grown at a compounded annual rate of 26% and its stock price had increased by 1,400% as a result of a strategy keyed to “accessible” luxury. Coach created the “accessible” luxury category in ladies handbags and leather accessories by matching key luxury rivals on quality and styling, while beating them on price by 50% or more. Not only did Coach’s $200 - $500 handbags appeal to middle income consumers wanting a taste of luxury, but affluent consumers with the means to spend $2,000 or more on a handbag regularly snapped up its products as well. By 2006, Coach had become the best-selling brand of ladies luxury handbags and leather accessories in the U.S. with a 25% market share and was the second best-selling brand of such products in Japan with an 8% market share. Beyond its winning combination of styling, quality, and pricing, the attractiveness of Coach retail stores and high levels of customer service provided by its employees contributed to its competitive advantage. Much of the company’s growth in net sales was attributable to its rapid growth in companyowned stores in the U.S. and Japan. Coach stores ranged from prominent flagship stores on Rodeo Drive and Madison Avenue to factory outlet stores. In fact, Coach’s factory stores had achieved higher comparable store growth during 2005 and 2006 than its full-price stores. At yearend 2006, comparable store sales in Coach factory stores had increased by 31.9% since year-end 2005, while comparable store sales for Coach full price stores experienced a 12.3% year-overyear increase. Coach’s dramatic growth that resulted from its strategy keyed to “accessible luxury” had not gone unnoticed by long-established luxury goods makers. In 2006, most leading designer brands had developed sub-brands that retained the styling and quality