Coach, Inc. Case Study

Abstract

Coach, Inc began operations in 1941 in New York to produce women’s handbags. It’s initial strategy focused on being the lowest cost provider by setting prices approximately 50 percent lower than more luxurious brands. This strategy was very effective until the mid-1990’s when consumer preferences began to change away from traditional leather bags (Gamble, 2007).

Coach began a restructuring of its approach to sales in 1996 with the introduction of market research to determine consumer demand by the new creative designer, Reed Krakoff.

Through rapid prototyping and new collection releases every month, Coach began to regain market share. Combined with a targeted store campaign and good internal controls, the company was able to increase the allure to the shopper while reducing internal costs through outsourcing agreements. Low cost combined with good quality attracted more affluent customers to its stores.

Subsequently, annual sales continued to increase from $500 million in 1999 to more than $2.1 billion in 2006. Share price also increased by nearly 15 times the original IPO value in 2000.

Coach, Inc. Case # 8

1

What are the Key Success Factors (KSF) for makers of fine ladies handbags and leather accessories?

Table (Rapidbi, 2008):

The Industry

Critical success factor Supplier costs

Customer preferences (Taste, styles)

Store locations

Counterfeiting (identification and control)

Competitive strategy and industry position

Differentiation, developing customer brand loyalty

Low Costs, economic conditions creating tighter budgets requiring changes in shopping habits.

International markets, diversifying shopping markets to increase market share and reduce local impacts of economic conditions (unless impact is global)

Industry leader, attract buyers due to association with being the leader in luxury handbags

Environmental Factors

Economic outlook needs to be good to encourage shoppers to purchase higher-cost luxury goods

Customer preference changes, such as preferences changing from leather bags to more environmentally friendly products.

Shipping costs such as fuel price increases

Managerial Position

Quality control, shoppers must view luxury handbags as of the highest quality

Well controlled Inventory, rapid shopper preference changes and seasonal changes require rapid responses to meet short term demand

Supplier agreements, favorable outsourcing agreements with manufacturers to provide products made to design specifications in the shortest time possible at low cost

2

What is Coach’s strategy to compete in the ladies handbag and leather accessories industry? Has the company’s strategy yielded sustainable competitive advantage? If so, has that advantage translated into superior financial and market performance?

Coach appears to be continuing to follow a strategy that is both low-cost, via its factory stores that typically offered 10-50 percent discounts on overstocked and discontinued items, and full-price stores which offered the latest product lines without discounts. With little overlap in customers between the stores, the company is able to market to both the discount, price sensitive shopper and the more trend-oriented shoppers how demand the latest fashion and are willing to pay for it. This has kept Coach sales on the rise, 31.9 percent for factory stores and 12.3 percent in full-price stores. Additional resale agreements to department stores via wholesale sales further increased market share and exposure of the Coach product line in 2006. Sale to US department stored increased by 23 percent in 2006 even while eliminating 500 of department store accounts between 2002 and 2006.

Sales in Japan also shows increase every year from 2001 through 2006.

This has translated into superior performance, however with inventories increasing and competition getting stronger this performance trend