Coach Company Analysis
Recommendation: Sell Coach
The current recessionary environment has had a strong negative impact on individual income levels, consumer spending and consumer credit availability. As a producer of high priced luxury goods Coach stands to suffer from the state of the economy as conspicuous consumption is frowned upon and consumer frugality is in fashion. These are factors that significantly impact Coach’s financial outlook as the company has experienced declines in both same store sales as well as earnings from fiscal 2008 to fiscal 2009. Coach’s gross margins are also shrinking as the company has had to increasingly rely upon its factory outlet stores to sell ...view middle of the document...
The company provides innovative and fashionable products at relatively attractive prices. Coach’s product line consists of handbags (64%), accessories (28%) and other (8%) products including footwear, jewelry, brief cases, etc (please see Appendix 2). Major elements of differentiation include: its distinctive brand name, market leadership position, loyal customer base, multi-channel international distribution and its consumer-centric design operations.
The Coach brand name is associated with quality and value due to the company’s expertise in design and emphasis on providing attractive prices to customers. Coach is the market share leader for handbags and accessories in the U.S. and Japanese markets (please see Appendix 3) and is targeting emerging markets such as China for further growth opportunities. The company has cultivated an emotional attachment between its customers and its brand through continually producing superior value and being abreast of market trends. Coach products are sold through both its own retail outlets as well as other established retailers worldwide and through its online catalog. It is a consumer centric business as the company conducts rigorous consumer research in gauging changing trends and consumer interests. The company’s design and merchandising teams are well respected for collaborating to forecast fashion trends and produce quality products that are appropriate for each season.
Production begins with Coach’s New York-based design and merchandising teams. These two teams work in tandem to produce items that perpetuate the Coach brand and its image of quality. The design team conceptualizes Coach products and has access to the company’s archives of 70 years worth of design concepts. These archives are a valuable resource for new design concepts. The designers are supported by a merchandising team that excels in consumer research. Merchandisers are responsible for analyzing products and adding as well as deleting lines in order to achieve profitable sales across all channels. The product category teams, which consist of both designers and merchandisers, help Coach execute design concepts that are consistent with the company’s brand image and strategic direction.
While Coach controls the design of its products the manufacturing is done by independent contractors. Coach ensures quality raw materials go into its products by maintaining sourcing and product development offices in Hong Kong, China, South Korea and India that work closely with the independent manufacturers. The rigorous selection of raw materials has been key to maintaining Coach’s brand image of superior quality. Coach factories are in low cost markets such as China, Thailand, Vietnam, Turkey, Ecuador and others. The company’s commitment to maintaining material quality combined with the low cost manufacturing process has been an integral aspect of the company’s financial success.
Coach operates an...