Coach, Inc is a marketer of fine accessories and gifts for women and men. The company is engaged in designing, wholesaling and retailing of handbags and accessories. Its product portfolio includes handbags, women’s and men’s accessories, footwear, jewelry, apparels, business cases, eyewear, and related products. Coach is involved in the sale related activities of its merchandise through factory stores and retail stores in the US and Canada.
The company also sells its merchandise through freestanding flagship, department store shop-in-shop locations, retail stores and factory stores in Japan, Hong Kong and China. It wholesales its merchandise through its distributors in 20 countries. The company principally operates in the US, Canada, Japan, Hong Kong, China and Macau. Coach is headquartered in New York. Coach Inc is a leading designer, producer and marketer of classic leather goods and accessories which was a spinoff of Sara Lee in the mid 1980’s These products include handbags, men’s and women’s accessories, business cases, leather outerwear, gloves, scarves, travel accessories, and personal planning products. Coach also sells fragrances and watches with its licensing partners.
The products are sold through direct mail catalogs, on-line store, e-commerce websites, 345 retail stores and its 143 factory outlets in North America, 169 stores in Japan and 66 stores in China. Coach focuses on continuous improvements and anticipating the needs of consumer’s lifestyles to maintain its stronghold of the market.
Key success factors for Coach as a manufacturer include matching key rivals in quality and styling while beating them on price by 50 percent as well as and the ongoing creative designs. Coach has an exceptionally large and loyal customer base mostly due in part to the outstanding product quality. Coach takes great pride in using skilled employees, quality natural materials, exceptional leathers, and only the finest hardware. Through the years Coach has earned a reputation for producing a product that is known for its durability, craftsmanship, and incomparable product quality. Coach has become one of the most well recognized brands in the United States and is rapidly gaining recognition internationally, especially in Japan.
The Apparel and Accessories Industry is very competitive because companies must find a way to constantly capture market share in a market that is constantly changing to fit consumers taste. Many companies that enter this market fail because they come out with a very popular style for their product for a limited period then go into rapid expansion only to have their product fall quickly out of style and become obsolete. The ability to keep up with changes in fashion trends and finding a niche in the market usually determines which companies can survive in this highly competitive industry.
Problem statement This industry is highly competitive; consumers in this industry have high demands of luxury, sustainable products with affordable prices. Most if not all of the products sold in this industry are considered luxury products, which means the market will be highly sensitive to economic fluctuations. All of these factors result in putting high pressure on the companies that are in this industry, therefore the key factor to guarantee long term success is to ensure a steady growth yielding a steady income.
In the case of Coach Inc the company goes through periods of high sales accompanied with high growth but fails to maintain a steady growth over the extended life due to the believe that the company had in their main strategy which relied upon limited products that are made with a very good quality and sell at 50 percent lower price than its competitor products, Coach Inc was correct in the fact that one of their main factors of success was their “accessible luxury” products to secure a good market share yet they failed to be pro-active in asking their customers what would their future expectation be and exceed that expectation by delivering up to date fashionable, high quality products with reasonable prices, in 1995 the company went through a rapid decline which was a near stale state, sales dropped from 40 percent to 5 percent this resulted in feeding the investors’ worries which made the whole company’s future to be questionable, this was effectively dealt with when Sara Lee took over and decided to revamp the design of the products based on her customers reviews provided by the extensive surveys that were done on hundreds of customers, that strategy allowed Coach inc to build a sizeable lead in the “accessible luxury” segment and it was evident in the very strong sales results which quadrupled the growth in annual sales from $555 Million in 1999 to more than $4.2 Billion in the year 2012.
Currently the company is going through a decline in the stock price which could be the result of investors mixed feelings of the economic instability and the fact that Coach Inc could fall behind its competitors, during the first six months in 2012 Coach Inc stock price fell $20. My analysis shows that the company is repeating the same pattern that happened in 1995, even though the company pays extra attention to making customer experience a differentiating aspect of the brand, yet they have failed to be a proactive company that drives the needs of its customers, the company should communicate more with its clients regarding their product expectations and anticipate their needs before they ask for it, by doing that Coach Inc would increase the brand loyalty and demonstrate that they are able to maintain a steady growth in this very competitive industry.
In the fiscal year 1999 net sales was approximately 500 million and there was an increase in net sales every year leading to 2.1 billion net sales in the fiscal year 2006. Reed Krofoff’s appointment and his approach to designing products based upon market research rather than designers’ instincts is one of the main and most important reasons behind Coach Inc’s success and tremendous revenue growth. Income statement shows a gradual steady increase in net income between the year 2007 – 2011 except for the year 2009 that had $623,369 which was mainly due to the economic distress, it would be very interesting to see the income statement for year 2013 and 2014 as it would be a clear indication of the company’s performance after the introduction of similar products by solid brands.
Balance sheet of the company shows the results from July 3, 2010 to July 2, 2011. As of July 2, 2011 cash and cash equivalents was $699,782 million and short term investments were $2,256 million, total assets as of July 2, 2011 was $2,635,116 which was better than total asset record for the prior year, this clearly shows that Coach Inc is more than capable of taking on new expansion initiatives i.e. greater expansion in Europe and emerging markets.
Five Forces Model Competitive Force 1: Current Competitors
Currently there are quite a few competitors that launched new accessible production lines to directly compete with Coach Inc’s main product, these competitors have the ability to compete aggressively and have a solid luxury brand name such as Michael Kors, Salvatore Ferragamo, Prada Giorgio Armani, Dolce & Gabbana and Versace.
Historically Coach Inc has done an excellent job of establishing their brand to consumers which is evident in the rapid increase of sales between 1999 and 2012. This has enabled Coach to constantly attract new customers while retaining current customers year after year. Also, unlike its competitors was able to drive their sales on rising prices which says that consumers are generally not concerned with the price of their products but more on product quality yet some competitors are showing the intent of developing strategies to establish similar “Accessible luxury” products, this means that Coach Inc will have to pay close attention to its customers needs and make sure that they are driving that need by forecasting and analyzing the needs and wants to maintain their competitive edge over their aggressive competitors.
Competitive Force 2: Threat of New Entrants
New entrants into the Apparel/Accessories industry pose an average risk to a company like Coach. Since brand image in this industry is very important, companies that have established themselves as leading brand have a distinct advantage over new companies. Coach has an even better advantage over new entrants into the “affordable luxury” because of the higher price range. This is true because when making expensive purchases people tend to stay with what they know and trust which means they are less likely to purchase a product they are unfamiliar with.
Coach also avoids having the one hot item by launching new collections every month based upon market research rather than designers’ instinct which helps them avoid falling in the one hot item category that falls out of favor within a year or less, this mistake usually happens with many new entrants as they attempt to quickly capture a market share. My analysis shows that by keeping their strategy of a constant line of quality products marketed to their more mature core group of customers, Coach will remain popular and will also continue to strive in their market and separate themselves from new entrants.
Competitive Force 3: Threat of Substitute Products
The threat of substitute products to a company such as Coach is relatively high. There are two types of substitute products that could pose a threat to the company: alternate brands and counterfeits. Brand name and product quality are what drive sales in the Apparel/Accessories industry which is why Coach was not threatened by other brand names. However, a few quarters of lousy product offerings or poor quality products can drive down the brand equity that Coach has created which means alternate brands could benefit and present challenges for the company.
The second substitute product that could cause a problem for Coach is counterfeit products. Coach works very hard to minimize the amount of counterfeits in the market place by prosecuting individuals that make the products and they also provide an online form so customers can report counterfeits if they are found. These products are usually of poor quality and are manufactured in a way that violates decent labor standards such as child labor. Coach is very adamant about stopping counterfeiting because they can reduce sales and brand equity that in turn are detrimental to the company.
Competitive Force 4: Bargaining Power of Buyers
The effect of Coach’s customers bargaining power on the company is relatively low. Their price sensitivity is low due to the fact that their customers buy these products because of the brand image that Coach possesses, the quality of the products and the popular styling of the products. This has been proven to be true in the past because of Coach’s ability to increase sales and customer base while raising prices at the same time; something that hardly any of their competitors have been able to accomplish. Coach’s customers also have a low relative bargaining power because they offer many different products at different prices to a very large, expanding customer base whose purchase volume is usually very small. Coach customers do have a few choices when it comes to alternative products but Coach’s popularity and continued success keep the customers loyal to their products.
Competitive Force 5: Bargaining Power of Suppliers
A very big positive advantage for Coach is that not only do their customers have minimal bargaining power but their suppliers also have limited power at the negotiating table. Coach’s main material used in manufacture is leather, which can be bought from many different suppliers around the world which gives the company options when purchasing raw materials. Coach also buys manufactured products independently from different countries including China, Costa Rica, Mexico, India, Italy, Spain, Hungary and Turkey. Because of the large amount of goods Coach buys from different suppliers they have the ability to negotiate prices with several different suppliers.