Coach Inc., (NYSE:COH) is a globe leader in fine accessories and gifts market, and one of the most profitable competitors in the leather goods and luggage manufacturing globally. Coach generated $4.76B in Revenues in their latest full fiscal year and earned a Net Income of $1.04B. Coach is a highly profitable business, earning 21.77% Net Profit Margin, 30.44% Operating Margin and 33/12% Return on Assets (ROA) in addition to a Return on Average Equity (ROE) of 51.3%. An eleven year financial ratio analysis is include in Appendix A, Coach Inc., Ratio Analysis. These financial accomplishments are significant given how consolidated the fine accessories and gift markets have become in recent years with the company reporting that their own market research shows the overall industry consolidating at a negative growth rate of 9.6% from 2007 to 2012, with continued consolidation, dropping 2.4% from 2012 to 2017(Coach Investor Relations, 2012). Industry analysts are predicting that there are approximately 4,700 companies competing in this industry today and that in the U.S. alone the manufacturing and sales of leather handbags and accessories generates $1.8B in profits (IBIS Research, 2012). Coach has less than 1% market share of the global industry, yet has significant market share in the affluent (over $100K income) buyers located in North America, Asia and throughout the Middle East, which is growing rapidly as a source of revenue for the company (IBIS Research, 2012). Coach is unique in that it competes across a wide variety of product categories in the high-end of the market, taking on significant inventory risk by sourcing men's and women's handbags, accessories including business cases and backpacks, in addition to footwear, jewelry and sunwear for women and men. The company has also successfully move into fragrance and watches, two product lines generating well over 50% gross contribution margins per the company's latest financial statements (Coach Investor Relations, 2012).
Coach relies on a Direct-to-Consumer and Indirect channel strategy, which gives them greater visibility into customer demand while at the same time concentrating the company's focus on key markets (Coach Investor Relations, 2012) . The company has stores in Japan, Hong Kong, Macau, mainland China and North America and continues to enjoy success in the Middle East with this Coach catalog and Internet-based e-commerce strategies (IBIS Research, 2012). Coach operates 345 retail and 143 factory-based stories in 20 countries (Coach Investor Relations, 2012).
Market and Competitive Analysis
Coach continues to gain profitable sales and is able to attain significant sales due to the high level of customer loyalty and brand value that its products provide. The company satiates that 65% of sales are from returning, loyal customers, which is the highest repurchased rate of any retailer in their competitive arena (Coach Investor Relations, 2012). In evaluating the competitors in this market, industry analysts have commented how fragmented its structure is, and how differentiation through customer experience and breadth of products is critical for success (IBIS Research, 2012). Coach has been able to grow to a $4.9B corporation due to making their business excel on these dimensions. Competitors most prevalent include American Apparel and Tandy Brands, in addition to private-label suppliers for mass merchandisers including French conglomerate Carrefour, United Kingdom-based Tesco and Wal-Mart. These three mass merchandisers are increasingly sourcing low-end knock-offs of Coach-based designs, changing the labeling and packaging to alleviate potential copyright infringement (IBIS Research, 2012). The next effect of their competitors continually pursuing a low-end pricing strategy is a net reduction in the total revenue for the industry as was shown in the introduction of this analysis. Price wars are breaking out on low-end products that Coach sells, further accelerating the commoditized of this industry as well (Coach Investor Relations, 2012) (IBIS Research, 2012).
Based on an analysis of the industry from IBIS Research (2012) and from the financial statements from Coach, the graphic shown to the right has been created.
Figure 1: Analysis of the Leather Goods and Luggage Manufacturing Industry
(Coach Investor Relations, 2012)
(IBIS Research, 2012)
Current Distribution Structure and Strategy
Coach currently selling through a classical multitier distribution channel structure, relying on 345 retail and 143 factory-leased stores in the U.S. alone and also maintained retail locations in 20 countries (Coach Investor Relations, 2012). Coach is the dominant high-end retailer of gifts and accessories in Jana where the typical customer earns in the top ten percent of income in…