Coach
COACH HANDBAGS
Overview
Since October 2000’s IPO, net sales had grown at a compounded annual rate of 26% and stock price had increased by 1,400% as a result of a strategy keyed to “accessible luxury”. Coach created accessible luxury in ladies handbags and leather accessories by matching key rivals on quality and style, 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 also bought Coach. By 2006, Coach had become the best-selling brand of ladies luxury handbags and leather accessories in the US with a 25% market share. Coach retail stores and high levels of customer service provided by its employees contributed to its competitive advantage.
What are the defining characteristics of the luxury goods industry? * Market size and growth rate: The global luxury goods industry was expected to grow by 7% during 2006 to reach $112 billion. * Scope of rivalry: Global, with Italian luxury goods companies accounting for 27% of industry sales in 2005, French luxury goods companies – 22%, Swiss – 19%, and US companies – 14%. * Forward/backward integration: Most manufacturers were vertically integrated forward into the operation of retail stores. Unlike other signature lines such as Armani and Versace which manufactured under the supervision of the designer, Coach lines were produced by low-cost contract manufacturers. * Consumer characteristics: Although traditional luxury consumers in the US ranked in the top 1% of wage earners with household incomes of $300,000 or more higher, a growing percentage of luxury goods consumers earned substantially less, but still aspired to own products with higher levels of quality and styling. Manufacturers of the finest luxury goods sought to exploit middle-income consumers’ desire for such products by launching “diffusion lines” which offered affordable or
Overview
Since October 2000’s IPO, net sales had grown at a compounded annual rate of 26% and stock price had increased by 1,400% as a result of a strategy keyed to “accessible luxury”. Coach created accessible luxury in ladies handbags and leather accessories by matching key rivals on quality and style, 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 also bought Coach. By 2006, Coach had become the best-selling brand of ladies luxury handbags and leather accessories in the US with a 25% market share. Coach retail stores and high levels of customer service provided by its employees contributed to its competitive advantage.
What are the defining characteristics of the luxury goods industry? * Market size and growth rate: The global luxury goods industry was expected to grow by 7% during 2006 to reach $112 billion. * Scope of rivalry: Global, with Italian luxury goods companies accounting for 27% of industry sales in 2005, French luxury goods companies – 22%, Swiss – 19%, and US companies – 14%. * Forward/backward integration: Most manufacturers were vertically integrated forward into the operation of retail stores. Unlike other signature lines such as Armani and Versace which manufactured under the supervision of the designer, Coach lines were produced by low-cost contract manufacturers. * Consumer characteristics: Although traditional luxury consumers in the US ranked in the top 1% of wage earners with household incomes of $300,000 or more higher, a growing percentage of luxury goods consumers earned substantially less, but still aspired to own products with higher levels of quality and styling. Manufacturers of the finest luxury goods sought to exploit middle-income consumers’ desire for such products by launching “diffusion lines” which offered affordable or