Thomas Ricca Marketing Management 10/14/2009

Case on Coach Inc

I. SITUATION ANALYSIS Nature of Demand Coach Inc. is a luxury retailer of fine handbags, luggage and leather accessories. Coach distributes it's products direct-to-consumer and also indirectly to consumer. Consumers are able to buy products directly from Coach through factory outlet stores, full price stores, department stores and on the companies website coach.com. The firm has divided it's company owned stores into two categories factory stores and full price stores. Coach has had a successful business strategy of selling luxury handbags for much less than competitors; doing so they were able appeal to the middle class while still offering very expensive products for the wealthy. Being able to reach a market that was previously ignored has allowed for huge sales growth. The factory stores sell discontinued models, concept models and other special products at a deep discount of between 15-50% off full price. Full prices stores obviously sell the newest and current product lines at full price. Coach as of 2006 is operating 218 full price stores, 86 factory stores and had product lines in 900 department stores. Coach has strategically placed full price stores in upscale locations such as Rodeo Drive and Madison Avenue. Brand awareness for Coach is considerably high, especially among women. Because there are few rivals that can compete in the accessible luxury market at their price point there is a good degree of

customer loyalty. Coach has found that factory store and full price store customers are equally brand loyal. Consumers gain product information from store visits, online and though word of mouth. Coach has been able to to create more store visits with monthly product launches and introductions. This also allows Coach to be able to stay current with the changes and newest fashion trends. Coach caters to those who seek to indulge in luxury items with overspending. According to Coach marketing research the average the full price store customer is 35 years old, college educated and is a women in the early stages of marriage or single. The average factory shopper at Coach is slightly older at 45 years old is again college educated , professional women married with children. .Customers of Coach will likely have great buyers interest and personal stratification because they are buying the items because they are fashionable and to be seen. Many women get personal enjoyment from shopping and the staff at Coaches are trained to provide a positive buying experience. The brand decision would be made before or upon entering the store. The purchasing decision would be made at point of sale; however under some circumstances their products can be ordered and delivered to buyers home. The location of buying descending is usually made in store but it may also be made online or at home ( special request service). Purchase risks would most likely fall in the moderate to high level; as products are expensive and fashion trends can change quickly. Extent of demand Coach currently is the leader in the US with ladies handbags and accessories with 25 percent of the market share. Internationally in Japan they are the second leading brand of luxury handbag with 7 percent of the market share. In recent years in particular since the (IPO) in 2000. Sales have grown at a compounded rate of 26 % and market share has more than doubled since 2002. Much of this growth has came from the factory stores. Factory sales grew almost 30 percent from 2005 to 2006. There has also been tremendous growth and depend in Japan; where Coach is at the forefront. Sales grew in Japan from 144 million in 2002 to 420 million in 2006. Much of the growth can also be attributed to an undeveloped market segment of middle income women who wanted to enjoy high end luxury fashions

with out spending more than they could afford. Nature of Competition As with any product competition follow success. Recently there has been increased competition in their leading accessible luxury segment. Other high end luxury brands have been lowering prices and even creating new brands and spin-offs. Dolce & Gabbana has developed the D&G brand which it sells it's affordable luxury products. Georgio Armani has gotten in to value luxury with a line called Emporio Armani and Gianni Versace has its own version called the Versus line. Environmental Climate The luxury segment is a fast growing and lucrative field. It is expected this segment will grow in demand and global income rises. Globalization has led to many emerging markets and wealth. Coach has mainly concentrated it's stores in the United States, Japan . Other luxury designers have been opening up retail locations in China, India. Coach has opened 13 retail stores in Hong Kong and plans to open more than 10 locations in mainland China. Stage of product life style The life cycle of Coach would be in the mature stage. Coach is looking for new markets , new uses and new products. Coach is at point now where they must either decline or expand. The luxury market in the US has become slightly crowded and many other firms are seeking global expansion to incur further growth. Sales have remained constant and there has been solid growth in the industry. Cost structure of the industry The cost structure of the luxury market would place important consideration on the profit margin. Luxury items carry a higher than average profit margin because of brand mark up. Profit margins of 4050 percent are considered average. While accessible luxury items have a lower profit margin closer to 20 percent. This may appear to be poor price management but retailers will make up for the difference in sales volume.

Skills of the firm Coach is strength is that it's able to stand out in a crowed market. Stores have been redesigned to be more minimalist and modern. The goal of the redesign was to make the stores feel more inviting to the customers. The remodeling and monthly product releases successfully has led to increases in store traffic. Another venue where Coach seeks differentiation is in customer service; Coach will replace and repair any handbag despite damage extent age. Coach also has a special request service, customers are allowed to order merchandise for homer delivery if the item is available when the customer shops at the store. Financial Resources Coach has had outstanding revenue growth, in 1999 the firm had sales 500 million USD in 2006 this firm had revenue of over 2.1 billion USD. This shows that Coach's management is proficient at growing it's market share. In 2006 has a gross profit of 1.6 billion dollars and over 140 million is cash and cash equivalents. This is sufficient resources for coach to use to support expansion and other programs to grow and support operations. Distribution structure Coach's distributor channels designed to be quick and efficient . They operate in direct-to-consumer and indirectly. Full price and factory stores, website sales, and catalog sales are all direct-to-consumer Factory stores have had more growth than full price; some experts believe that this could potentially lead to a loss of their brand image. II. DESCIAN FOCUS AND ALTENTITVE Coach has re invented the luxury market by selling luxury products at 50% of what their competitors charge. Many of Coach's strong competitors have started to offer discounted lines of affordable luxury items. Coach is in risk of loosing valuable market share to competitors. Competitors are expanding into to new locations and Coach stands to loose their uniqueness among competitors. The root of their problem is sustaining their rapid growth.

Alternative I Coach has seen faster growth and sales in their Factory stores rather than their full price. Even though 54 percent of sales were from full price stores(2006).There is a risk of Coach falling out of favor if they become a bargain brand. The full price gives Coach the excursively that they need to sell all of its product. In order for Coach to increase revenue in it's full price stores I would recommend that Coach offer its best customer a special discount at full price stores. These discount could be at special infrequent times such as holiday weekends. It's important that Coach keeps and grows it's full price stores. Alternative II In order for Coach to stay ahead of it's competitors it needs to expand further into emerging markets. Coach has traditionally limited it's operations to the US and Japan. They have been working with disturbers and have location in 18 countries including Korea, Hong Kong, Taiwan, Singapore, Saudi Arabia, Australia, Thailand, Mexico, Malaysia, France, China and the Caribbean. Coach has less 10 retail stores in China and they do not have stores in India,Competitors have such as Louis Vuitton presence in China with 12 stores in 10 of the largest cities. Louis Vuitton and other competitors have also opened stores in India. The parent company of Louis Vuitton has plans to open 50 more retail stores in the next few years in India. Globalization has created a lot of wealth and emerging markets, Coach should take advantage of this situation and further expand operations in China and India. If Coach is only able to support radical expansion in one country I would advise choosing China over India. Alternative III Many of Coach competitor such as Luis Vuitton offer many more products than just handbags and women assemblies. Louis Vuitton offers Decision- Alternative II

Coachs business strategy is a winning one. They don't need to change how they do business but rather just expand their operations to maintain and grow market share. Coach has been able to utilize outsourcing and offshore production in order to sell products at discount prices. They should be very familiar with conducting business in other countries. They already have exposure in 18 countries but it is not enough. The market for luxury items in emerging markets is estimated to grow 10 percent annual. China is predicted to the worlds largest consumer of luxury items by 2014. This where Coach should be concentrating there efforts, Coach already plan to open 10 retail stores in mainland China but it is not enough. If Coach is able to expand it's operations in China it will be poised to be come a luxury leader in the worlds largest luxury market.