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Case Analysis: COACH, INC.
Case Analysis: COACH, INC.
Prepared by:
April M. Lane
Organizational Strategy & Policy
MGMT440
Tusculum College
BSG70 (BS585)
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Case Analysis: COACH, INC.
Abstract
The purpose of this paper is to evaluate Coach, Inc. in the market of luxury and premium
handbag industry. This evaluation will compare Coach, Inc. to their competitors and will look at
their strengths, weaknesses, opportunities, and threats and will also discuss what
recommendations that I would offer to Coach to help them in the future.
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Case Analysis: COACH, INC.
I. Identification
A. Overview of the Company’s Situation
Coach, Inc. is the leading American design house of modern luxury accessories. Founded in
1941 in Manhattan, New York, by Miles Cahn, Coach, Inc. continues to maintain the highest
standards for materials and workmanship. (Coach Company Information , 2014). Coach, Inc.
currently has 5.1 million likes on Facebook (Coach on Facebook , 2014), and 540 thousand
followers on Twitter (Coach Inc. on Twitter, 2014). Forbes List ranks them as the #45 in the
World’s Most Valuable Brands, #1,039 on the Global 2000 list, and they are on the S&P 500
Index. (Coach on Forbes, 2014). The company was purchased by the Sara Lee Corporation in
1985. In October 2000, Coach, Inc. made its first Initial Public Offering on the NYSE and in
2011 they were the first company incorporated in the US to list in Hong Kong under stock code
6388. The first IPO was set at a price of $16.00 per share. At the end of 2013, Coach, Inc. had
351 retail stores located in North America and 193 factory outlet stores in North America and
employee approximately 17,200 people. They also had over 400 stores located in Asia and 20
stores in Europe. (Coach Company Information , 2014). Coach, Inc. net income was $1,034,420
in the fiscal year ended June 29, 2013. (Coach Inc. 2013 Annual Report , 2013). Coach, Inc. has
continually grown since their start in 1941, but they are facing some hard competition. They
compete with retailers that sell accessories such as women’s and men’s bags, leather accessories,
leather apparel items, business cases, footwear, jewelry, travel bags, watches, and fragrances.
Some of their biggest competitors include Michael Kors, Prada, Giorgio Armani, Dolce &
Gabanna, Dooney & Burke, Louis Vuitton, and Versace. The company’s strategic objectives as
of 2012 were to increase global distribution and to improve same-store sales productivity.
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Case Analysis: COACH, INC.
B. Significant problems and issues that confront management
Some of the issues facing Coach, Inc. management include seasonality, government regulations,
competition, and counterfeiting. Because Coach products are frequently given as gifts they
usually have higher sales and operating income in their second quarter, which includes the
holiday months of November and December. Government regulations are making Coach’s
imported products subject to duties, indirect taxes, quotas and non-tariff trade barriers that limit
their import quantities. The premium handbag industry is highly competitive and they normally
compete with both European and American luxury brands and private label retailers. This
increased competition also drives consumer interest in this brand loyal category. Finally, Coach
faces the issue of counterfeiting.
C. The company’s strategy
Coach, Inc. has a strategy that is focused on five key initiatives. These initiatives include
building a market share in North America by opening approximately 15 new full-price retail
stores and 25 factory outlets, to build a market share in Japan through the addition of 15 new
locations there, to raise brand awareness and build share in underpenetrated markets, including
Europe , South America, and Asia with 30 new locations planned in these regions, to increase
sales of products targeted toward men, and to raise brand awareness and build market share
through their website, global e-commerce sites, and through social networking sites. (Coach Inc.
2013 Annual Report , 2013).
D. Strategy implementation issues
Some of the issues Coach, Inc. faces with strategy implementation are that they have been facing
intense competition from their rivals in both a domestic and a global market. The American
economy has been weak for a long time due to political instability thus contributed to
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Case Analysis: COACH, INC.
deteriorating performance of the company. It has had a weak presence in the European market,
and faced stiff competition in the Japanese market.
II. Evaluation
A. How strong is the company financially?
I have compiled a list of financial ratios for Coach, Inc. and the industry average for comparison where available.
Financial Ratios Coach, Inc. IndustryDebt to Equity 0.04 0.19Current Ratio 2.50 3.30Working Capital 3.149 NAPrice/Earnings 14.20 23.70Gross Profit Margin 75.40 47.10Net Profit Margin 19.60 0.09Return on Total Assets 27.50 12.00Return on Stockholders Equity 43.23 14.99Return on Capital (ROCI) 52.1 NA
Earnings per Share 3.61 NABeta Score 1.45 0.91
Coach, Inc.’s financial ratios are a little bit higher and better than the industry average in some
categories. The debt to ratio should be less than 1.0 and Coach has a 0.04 with the industry
being 0.19. The current ratio should be higher than 1.0 and Coach has a 2.50 with the industry
being a little bit better with a 3.30. The working capital for Coach is 3.149 and larger amounts
are better because the company has more internal funds available to pay its current liabilities on a
timely basis and to finance inventory expansion, additional accounts receivable, and a larger base
of operations without resorting to borrowing or raising more equity capital. The Price/Earnings
for Coach is 14.20 with the industry being 23.70 and P/E ratios above 20 indicate a strong
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Case Analysis: COACH, INC.
investor confidence in a firm’s outlook and earnings growth. The gross profit margin for Coach
is 75.40 with the industry average being 47.10. The higher the gross profit margin, the better
since this is the percent of revenues available to cover operating expenses. The return on total
assets for Coach is 27.50 with the industry being 12.00 and the higher the number the better.
The return on stockholders equity for Coach is 43.25 and the industry is 14.99. A return in the
12-15% range is considered average, but the larger the number the better. And the earnings per
share for Coach are 3.61 and the bigger the annual percentage gains, the better.
B. Evaluate company competencies
1. Marketing
Coach operates its business in two segments: The Direct-to-Consumer segment, which includes
company-operated stores in North America and Japan, its online store and its catalogs. The
Indirect segment includes department store locations in the US, international department stores,
freestanding retail locations and specialty retailers. This multi-pronged international distribution
model sets the company apart from its competitors and allows the company to reach a broader
customer base and offer its products at multiple price points. Additionally, the company’s
success does not depend solely upon the performance of a single channel or geography.
2. Production
All of Coach’s products are manufactured by independent manufacturers which allows for a
broader mix of product types, materials, and seasonal influx of new, fashion oriented styles.
Unlike many other luxury retailers, Coach also utilizes lower-cost production facilities in
developing countries such as China and the Dominican Republic. No one vendor provides more
that 13% of Coach’s total production. (Coach Inc. 2013 Annual Report , 2013).
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Case Analysis: COACH, INC.
3. Managerial
Coach, Inc. management focus on three key growth strategies that include transformation to a
lifestyle brand, increased global distribution, and improved store sales productivity and they are
focused on four key initiatives that include transforming from a leading international accessories
company into a global lifestyle brand, to focus on men’s opportunity for the brand notably in
Asia and in North America, to leverage the global opportunity for Coach by raising brand
awareness and building market share in markets where they are under-penetrated most notably in
Asia and in Europe, and by harnessing the growing power of the digital world to accelerate the
development of their digital programs and capabilities in North America and worldwide. (Coach
Inc. 2013 Annual Report , 2013).
4. Other factors underlying the firm’s strategic successes or failures
Coach, Inc. believes that a strong long-term growth can be achieved through a combination of
brand transformation including expanded product offerings, additional distribution, and a focus
on innovation to support productivity and disciplined expense control. (Coach Inc. 2013 Annual
Report , 2013).
C. Is the firm producing satisfactory results? Why or why not?
Yes, Coach Inc. is producing satisfactory results having a strong balance sheet and a significant
cash position. They have a business model that generates significant cash flow and they are in a
position to invest in their brand while continuing to return capital to their shareholders. For
fiscal year 2013, their operating income increased 1.7% to $1.58 billion, the net income
increased 2.7$ to $1.07 billion, and their earnings per share diluted share increased 5.5% to
$3.73. (Coach Inc. 2013 Annual Report , 2013).
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Case Analysis: COACH, INC.
D. Evaluate the firm’s competitive position
Coach, Inc. competitive position has grown slightly stronger because of the decreased or steady
number of competitors in the luxury handbag industry. Both their annual revenue and their stock
prices have increased over the past few years, and they are planning on expanding their products
and their locations, which will bring in even more revenue in the future. (Eastburn, 2012).
Competition is a part of the business plan and Coach will continue to strive to improve their
customer service and their products so that they will be able to out rank their more “expensive”
competition.
E. Performance Analysis
1. SWOT Analysis
Strengths (Internal)-
Large retail network Excellent financial performance Craftsmanship Established brand Product innovation Relevance and excellent value Strong brand equity Beating competitors prices by 50% or more Outsourcing to cut cost and maintain low prices Channels of retail distribution from full-priced store, factory outlet, internet, and catalogs
Weaknesses (Internal)-
Large inventories Geographic market concentration Factory outlet stores outperforming full-priced stores Men’s accessories only account for 2% of sales (Coach Inc. 2013 Annual Report , 2013). Outerwear only accounting for 2% of sales (Coach Inc. 2013 Annual Report , 2013). Luggage only accounting for 1% of sales (Coach Inc. 2013 Annual Report , 2013).
Opportunities (Market)-
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Case Analysis: COACH, INC.
Large market in Japan Increase sales online New marketing initiatives to attract customer Increase globally New store openings Product expansion
Threats (External)-
Strong competition Consumer spending decline Counterfeit products Fashion trend changes Brand diffusion
2. Five Forces Analysis
Competition from rival sellers: Strong
Buyer demand is growing slowly or declining It is becoming less costly for buyers to switch brands Industry products are becoming less differentiated There is unused production capacity, and\or products have high fixed costs or high
storage costs The number of competitors is increasing and\or they are becoming more equal in size and
competitive strength The diversity of competitors is increasing High exit barriers keep firms from exiting the industry Coach occupies around 28% market share in the U.S. handbags market, and competes
with industry players including Louis Vuitton, Gucci, Vera Bradley, Fossil, Chanel, Guess, Marc Jacobs, Juicy Couture, etc. (Coach Inc. 2013 Annual Report , 2013).
In North America, Coach is increasingly facing intense competition from upcoming fashion companies such as Michael Kors, Tory Burch, and Kate Spade.
The rising competition in the North American handbags and accessories market is an overriding concern for Coach’s stock in the near term. Its comparable stores sales declined in the last quarter and this could continue in the near term.
Coach is undertaking a transformation strategy to evolve into a global lifestyle brand anchored in accessories. This transformation will take at least a few more quarters to reap the desired results.
Increased private label offerings by wholesale customers also increased the competition for Coach.
Competition from potential new entrants: Medium
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Case Analysis: COACH, INC.
Expected defensive reactions of incumbent firms Strength of barriers to entry Attractiveness of a particular market’s growth in demand and profit potential Capabilities and resources of potential entrants Entry of existing competitors into market segments in which they have no current
presence Incumbent cost advantages related to learning and experience, proprietary patents and
technology, favorable locations, and lower fixed costs Strong brand preferences and customer loyalty Strong “network effects” in customer demand High capital requirements Building a network of distributors or dealers and securing adequate space on retailers’
shelves Restrictive government policies To start up a new brand, significant capital expenditure is required for marketing and
floor space. Brand recognition and loyalty are among the main factors that drive middle-to-high
income earners towards luxury companies such as Coach. A new player would find it difficult to achieve this position without making significant investments.
The internet business has low barriers to entry and new players selling apparel, accessories and footwear online can emerge in the online sector.
Competition from substitute products: Low-Medium
Readily available and attractively priced Comparable or better in terms of quality, performance, and other relevant attributes Offer lower switching costs to buyers Increasing rate of growth in sales of substitutes Substitute producers adding new output capacity Increasing profitability of substitute producers Coach’s products are purchased by people in the middle-to-high income group. As
consumers in this income group like to wear high-end luxury brands to display affluence, the demand for brands like Coach will continue.
Counterfeit products represent a grave threat for the company, especially in emerging markets such as China. As the quality of counterfeit products has been improving over the past few years and this problem has the potential to dilute the company’s brand value. Hence, this is an area of concern for the company.
Supplier bargaining power: Low
Strength of demand for and availability of suppliers’ products
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Case Analysis: COACH, INC.
Whether suppliers provide a differentiated input that enhances the performance of the industry’s product.
Industry members’ costs for switching among suppliers Size of suppliers relative to size of industry members Fraction of the cost of the supplier’s product relative to the total cost of the industry’s
product Number of suppliers relative to the number of industry members Possibility of backward integration into suppliers’ industry Availability of good substitutes for suppliers’ products Whether industry members are major customers of suppliers Coach does not manufacture its own products. Instead, it relies on manufacturers located
in various countries such as China, Vietnam, India, Philippines, Thailand, Italy and the United States. (Eastburn, 2012).
In fiscal 2013, there was one vendor that contributed around 12% to Coach’s total units. (Coach Inc. 2013 Annual Report , 2013).
No other individual supplier provided more than 10% of Coach’s total units in fiscal 2013 making their bargaining power limited. (Coach Inc. 2013 Annual Report , 2013).
The increased costs of raw material and labor are usually shared by suppliers with their end customers. Coach sources its products from various geographies to limit the impact of inflationary pressure.
Customer bargaining power: Medium
Strength of buyers’ demand for sellers’ products Degree to which industry goods are differentiated Buyers’ costs for switching to competing sellers or substitutes Number and size of buyers relative to number of sellers Buyers’ knowledge of products, costs and pricing Threat of buyers’ integration into sellers’ industry Buyers’ discretion in delaying purchases Buyers’ price sensitivity due to low profits, size of purchase, and consequences of
purchase Coach sells through both, the direct-to-consumer channel and the wholesale channel. The
direct channel, which includes Coach operated stores and e-commerce sales accounted for around 89% of its total sales in fiscal 2012. (Coach Inc. 2013 Annual Report , 2013).
Since wholesale customers account for only around 10% of the total sales and their bargaining power is limited. (Coach Inc. 2013 Annual Report , 2013).
The bargaining power of end-customers is moderate. Coach has positioned itself as an affordable luxury brand and enjoys strong brand recognition due to its high quality products. However, its North American consumers are increasingly gravitating towards
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Case Analysis: COACH, INC.
newer fashion brands such as Michael Kors. Coach is losing some of its exclusive appeal to these upcoming brands.
The customers’ bargaining power will remain moderate in the future as Coach’s efforts to reinvigorate its brand appeal will be offset by rising competition in the market.
3. Competitive Strength Analysis
(Rating Scale: 1= Very Weak; 10= Very Strong)
Key Success Factors
ImportanceWeight
Coach, Inc.Rating Score
Louis VuittonRating Score
PradaRating Score
Products 0.25 9 2.25 6 1.50 7 1.75
Price 0.25 10 2.50 2 0.50 5 1.25
Quality 0.25 9 2.25 8 2.00 8 2.00
Selection 0.10 10 1.00 6 0.60 7 0.70
Co. Reputation 0.10 10 1.00 6 0.60 7 0.70
Location 0.05 8 0.40 7 0.35 8 0.40
Overall Rating: 1.00 9.40 5.55 6.80
III. Recommendations
A. Problems and Issues identified and analyzed
Short-term Problems:
Elevate Men’s Product Offering - Currently Coach offers products that are geared mostly
towards women and they should consider meeting the fashion needs of men.
Recruit Talented Fashion Designers - Coach needs to recruit more talented designers who
are extremely sensitive to the pulse of fashion and have the ability to design a number of
marketable products.
Ally with Strong Jewelry Brands - Coach can think about allying with a group of world-
class jewelry companies to try to combine varieties of jewelries with its products.
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Case Analysis: COACH, INC.
Long-Term Problems:
Upgrade Brand Image -Coach should take more advertising strategies into consideration
besides Internet. For example, TV commercials, as a kind of cyclic visual stimulation, are
much more eye-catching and effective than emails, catalogs and information listed on the
websites.
Curb Counterfeit Trade -Coach should further improve the technological content of
products to make it difficult to imitate and counterfeit. In addition, since Coach, Inc.
operates in many countries, the company could strive to persuade the foreign
governments to enact and amend their intellectual property laws, which can legally
protect Coach’s interests.
Expand in China - It is advisable for Coach to set up factories and retail stores in China so
as to both reduce operating expenses and better satisfy the growing needs of Chinese
customers.
B. How my recommendations will solve the problems
In order for the Coach to be successful in its operations, they should expand their operations in
the Japanese markets to increase their sales in the product lines of kids that are ages 4-12 years of
age and to Men. Coach should have an exclusive brand image, and have an established exclusive
Coach series that would target consumers of the upper class. They should recruit fashion
designers and ally with strong jewelry brands to increase interest and sales. For their long-term
problems, they need to upgrade their brand image and start advertising more they should also
curb counterfeit trading and sales by taking legal steps to protect their brand.
C. Is the firm financially capable of carrying out your recommendations?
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Case Analysis: COACH, INC.
Yes, Coach, Inc. is financially capable of carrying out these recommendations since their net
income and revenue have continued to be on the rise.
D. Agenda for action
1. The top priority for management should be expansion in the U.S. and into other countries,
especially Japan to help increase their market share and revenues. Coach, Inc. should aim for
expansion into Japan by early 2015. They need to expand into foreign markets for five major
reasons: To gain access to new customers, to achieve lower costs through economies of scale,
experience, and increased purchasing power, to further exploit its core competencies, to gain
access to resources and capabilities located in foreign markets, and to spread its business risk
across a wider market base. (Thompson, 2012).
2. The research and development team at Coach, Inc. should continue to update and product line
to gain a competitive advantage in the luxury handbag industry. They should focus on recruiting
fashion designers and to ally with strong jewelry brands to creating exciting new products by the
end of 2014.
3. The marketing team should upgrade the brand image of Coach, Inc. immediately and develop
new advertising methods besides their webpage. These include television commercials, emails,
and colorful catalogs.
References
Coach Company Information . (2014, 04). Retrieved from Coach:
http://www.coach.com/online/handbags/genWCM-10551-10051-en-/Coach_US/
CompanyInformation/InvestorRelations/?LOC=BN
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Case Analysis: COACH, INC.
Coach Inc. 2013 Annual Report . (2013, June 29).
Coach Inc. on Twitter. (2014, 04). Retrieved from Twitter: https://twitter.com/Coach
Coach on Facebook . (2014, 04). Retrieved from Facebook: https://www.facebook.com/coach
Coach on Forbes. (2014, 04). Retrieved from Forbes: http://www.forbes.com/companies/coach/
Eastburn, J. E. (2012). Coach Inc. in 2012: Its Strategy in the "Accessible" Luxury Goods
Market. In P. G. Thompson, Crafting & Executing Strategy (pp. C73-C83). New York :
McGraw-Hill Irwin.
Thompson, P. G. (2012). Crafting & Executing Strategy (19 ed.). New York , NY: McGraw-Hill
Irwin. Retrieved 2014
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