Coach Case

1. What are the defining characteristics of the luxury goods industry? What is the industry like? Economics define a luxury good as one for which demand increase as income increase. Luxury goods are said to have high income elasticity of demand as people become wealthier, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop. Unlike mediocre goods, they are related to price and high-income individuals. A luxury corporation may establish its image via pricing, exclusivity, limited availability, quality and location. High pricing gives the product its prestigious nature, and implies high quality. Luxury brands in general, relied on creative designs, high quality, and brand reputation to attract customers and build brand loyalty. The market for luxury goods was divided into three main categories: haute-couture, traditional luxury, and the growing submarket “accessible luxury”. At the apex of the market was haute couture with it very high-end “custom” product offering that caters to the extremely wealthy. Luxury goods manufacturers believed diffusion brand’s lower profit margins were offset by the opportunity for increased sales volume and the growing size of the accessible luxury market and protected margins on such products by sourcing production to low-wage countries. The luxury goods industry is under drastic change and at different levels. This has an impact on Coach's business because they have two different types of stores. On one hand they have factory stores who sell at a discounted price and on the other hand they have full-priced stores or flagship stores which cater to higher end consumers. While the factory stores are being hit by the American financial crisis due to the lack of disposable income for the middle class, full-price stores or flagship stores have brighter future with an increasing number of millionaires.
2. What is competition like in the luxury goods industry?