COACH Inc.

Sustainable Advantage in Luxury

Handbags
Agenda
 Company Overview
 Salient features of the industry/company
 Competitive forces
 Position of the company in the industry
 Competitors analysis
 SWOT analysis
 Current strategy and its evolution
 The draw-backs/pitfalls of the strategies
 Analysis of the emerging threats in the
environment
 Recommendations for the future
Coach Inc. –
BRIEF BACKGROUND
 American luxury leather goods
company
 Established in Manhattan, New
York, in 1941
 Headquartered in New York
City, NY
 Coach went public on the NYSE
in 2001. By 2007, revenue was
$2,612.5 million
 By 2007,Employed 10,100
people,
 Coach has 272 retail stores in
24 countries
Coach Inc
Revenue Breakdown
Coach Inc
Contribution to Revenue
Coach Inc.
U.S. Market & Coach’s Share
Industry Analysis
FASHION INDUSTRY
 What is fashion?

 Fashion is the life some people are

advocating in a short period
 Fashion has been characterized by change,
which decides the vibrancy of fashion
industry
 Short History

 In1845, the first fashion designer Charles

Frederick Worth, was born in Paris.
 Around 1900, fashion stepped into the all-
round development stage.
 After 1900,Fashion had become an industry.
 From 1970 to 1980, fashion went into a
period of globalization.
 After 1990, fashion industry continuously
rapidly developed.
Issue & Features
FASHION INDUSTRY
 Outsourcing issue
 Producing the products in low-cost countries

VS. locally manufacturing their products

 Intellectual property and piracy issue

 European countries: offer more protection

 America: fashion designs are not protected

 Developing countries: incomplete legal system

Competitors

 Competitors: Chanel, Louis Vuitton,

Hermes, Fendi, Christian Dior, Marc
Jacobs, Prada, Coach, Celine, Cartier,
Bally, Anya Hindmarch, and Versace.

 Stronger competitors: Hermes, Coach

Inc, and Louis Vuitton
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Market Positioning
Price
High

United Airlines

American Airlines

Low Quality
Delta

JetBlue

Southwest
AirTran
Frontier

Low

Position Map
Combining the two types of competitive advantage
with the scope of activities or customers leads to
four strategies.
The two narrowly focused strategies are often
considered a single focus strategy with two
variants.
Competitive Advantage

Lower Cost Differentiation

Broad Overall Cost Broadly Targeted

Target Leadership Differentiation
Competitive
Scope
Narrow
Cost Focus Differentiation Focus
Target
SWOT Analysis
 STRENGTHS:
 matching key luxury rivals on high quality leather
and innovative styling
 beating competitors price by 50% or more
 high level of customer service
 monthly introductions of fresh new handbag
designs
 strategic alliances to bring Coach brand of
handbags into luxury categories such as: watches,
footwear, glasses, fragrances outerwear, and
mens
 outsourcing to cut cost and maintain low price
 channels of retail distribution from full-priced
store, factory outlet, internet and catalogs
SWOT Analysis
 WEAKNESSES:
 factory outlet stores outperforming full-
priced store
 diluting brand with increased growth of
factory outlet stores
 men’s accessories only account for 2% of
sales
 outerwear only accounting for 2% of sales
 luggage only accounting for 1% of sales
SWOT Analysis
 OPPORTUNITIES:
 growing demand of luxury goods in
emerging global markets, such as
China and India
 increased wealth of consumers in
global markets of Asia, Middle East,
Australia, and Mexico
SWOT Analysis
 THREATS:
 French and Italian designer brands such as
Gucci, Prada, Louis Vuitton, Dolce &
Gabanna, and Ferragamo
 Brand diffusion: Manufactures of the finest
luxury goods launching diffusion lines to
exploit middle-income consumers. For
example, Dolce & Gabanna launching
“D&G”, a sub brand sold at modest price
points.
 Counterfeiting of luxury merchandise,
totaling $500 billion worth of goods sold in
countries throughout the world in 2006.
Coach Inc.
MARKET STRATEGY
 First, COACH is building market share in the ever popular U.S.
women's accessories market by leveraging our unique position as
an accessible luxury lifestyle brand. As part of this strategy, they
are emphasizing new usage occasions, such as weekend or
evening, and offering items at a broader range of prices as well.
Coach Inc.
MARKET STRATEGY
 Their second strategy is
the continued
acceleration of growth in
U.S. retail. By planning
to add 100 U.S. retail
stores over the next four
to five years, they hope to
bring the retail store base
to nearly 300 locations.
Coach Inc.
MARKET STRATEGY
 Third, they are aggressively
expanding market share
with the Japanese
consumer, by jumping 3%
during the next few years.
They will continue to open
select new retail locations,
including Flagships. This
year they are expecting to
open at least 10 new
locations in Japan.
MARKET STRATEGY (CONT.)

 Finally, they are

continuing to drive
gross margin higher
and leverage their
expense base.
CUSTOMER PROFILE
 Accessible luxury accessories
brand
 The average consumer is in her
mid-to-late 30's, college
educated, in the white collar
workforce.
 Household income averages
$100,000
 Endorses include famous
celebrities like Rebecca
Romijn, Eva Longoira
 The Signature "C" one of the
popular product demand
intended for a younger
generation of consumers
RELATIONSHIP TO SUPPLY CHAIN
 COACH customer base is very broad and diverse
from both a demographic and geographic basis. This
requires a broad platform of products to market and
appeal to a wide range of consumers. Factories have
to be nimble and able to work with a wide variety of
materials and products. The products must be
shipped all over the world which in turn requires
planning and logistics.
COMPANY ORGANIZATION
 50 individual factories all around the world in
terms of production
 Distribution center (Jacksonville, FL)
 Warehouse in Tokyo
 16 Production facilities, which are NOT
COACH owned, around the world
 Shipping lines are done by air and ground
transportation
 SIGNATURE C
START TO FINISH
 Designed in NYC, sample makers in NYC, line presentation to
business units to determine demand levels, design card with
"recipe" for product prepared, raw materials sourced
(development of raw materials starts well in advance), pattern
is sent to factories, production begins, finished product is sent,
usually via ship across the Pacific and either thru the Panama
Canal (all water) to a southeastern US port or into California
docks to go via train (mini land bridge) and truck to
Jacksonville DC. It is then picked and packed and sent to our
stores or wholesale customers.
 Where does the leather come
from?
 Leather is obtained as a by-product of the meat
industry across the globe
 COACH is very picky and the top 10% of hides
are purchased to go to tannery facilities.
 Now the jobs are outsourced to several different
countries to lower cost and increase quality
 COACH
SUPPLY CHAIN SYSTEM

Finished
Goods
Retail and Department
Transport Stores
Finished Goods Suppliers
Received at (FedEx)
Distribution Center
in Jacksonville, FL
Transport
Finished Suppliers Retail and Department
Goods (FedEx) Stores
 Signature C in the Supply Chain
 COACH controlled the distribution level of Signature
"C“
 Even within the factory division, currently not every
factory store even carries the "C" products
 It took COACH the better part of 3 years to release old
"C" to select factory stores
 This limited supply has helped to increase customer
demand as well as brand equity
 INVENTORY CONTROL
 Internal Corporate Merchandising Planning group which works
with our business units to determine production from the SKU
level and roll it up to an overall forecast/order.

 Automatic, dynamic, unit stock replenishment systems in stores,

'tell' our Distribution Center in Jacksonville when to replenish our
stores.

 Direct shipments from the Jacksonville Distribution Center are

 Shipments are sent to stores 4 times a year, at the beginning of

each main product phase.
Who can distribute Coach?

 COACH stores, factory stores, catalogues, authorized

department stores, and online catalogue.
 The catalogue is important in the USA and abroad.
 On-line store at www.coach.com started in 1999.
Shipping
 Jacksonville fills individual store needs using Fed-Ex
ground, Fed-Ex Express.
 3rd party trucking lines are used in Japan
 Store distribution needs are also met with transfers
from other stores
 Full price to factory is the most common, an example
would be a discontinued product
 Use of Information Systems
 The use of CAD/CAM systems
 Customer Service modules for order fulfillment
 Warehouse management system that allows pick n
pack in the distribution center
 Online routing guide that lets the stores know what day
of the week orders are pulled and when they should be
shipped
 Shipment reports are generated that report exactly how
many cartons are shipped and what is shipped
 Quiz Time
 Does COACH use FedEx or UPS?
 What is the average income of COACH
customers today?
 What is the most popular current product?
 What other country is a big player in
COACH?
 REFERENCES
 Phone Interview
Andrea Shaw Resnick
Vice President - Investor Relations
Coach, Inc.
516 West 34th Street, 5th Floor
New York, NY 10001
212-629-2618 telephone
212-643-1743 fax
aresnick@coach.com

 Official website of COACH www.coach.com

 Additional website http://www.indianchild.com/fashion/coach_purses.htmCoach

Recommendations
 Keeping inline with the company’s mission
statement of seeking to be the leading brand of
quality lifestyle accessories offering classic,
modern American styling
 Increase the amount of weak sale’s revenues of
mens’ accessories, outerwear and luggage by at
least 5% each, to total 7%, 7% and 6%
respectively to compete with rivals containing a
larger market share of these products
 Open 30 new full-priced stores a year, and open 3-
5 factory-outlet stores a year to increase
expansion, retain status of premium goods and
prevent brand dilution.
 Continue to produce top quality luxury goods
difficult of counterfeiting
 Recommendations
 Short term
 Website
 Promotion
 Purchasing information
 Long term
 Expansion in Asian Market
 Item Distinction
 Designers