Coach in Russia the Russian

Coach in Russia

The Russian market is an attractive one for makers of luxury goods. Coach Leather Products markets handbags and leather accessories within the luxury goods market. North America, Japan and Greater China are the primary markets for Coach, but Russia is a promising new market.

Russia has a high number of millionaires, fueled by that country's expanding oil and gas wealth. This class of Russians is the core target market for Coach. The target market is women aged 35-60, in wealthy families, and they are typically worldly and educated. These women use luxury brands as a sign of their status within Russian society. In general, they live in either Moscow or St. Petersburg, where most of Russia's wealth is concentrated.

Coach should set a number of objectives when entering Russia, including new store openings, sales in rubles, sales in dollars (once translated from rubles), and sales growth. Coach will also need to build the market, and in doing this they should have the objective of increasing brand awareness for Coach.

Financially, the costs of entering Russia should include $1 million in launch costs and a further $1 million to set up direct marketing in that country. However, beyond that marketing should be within the normal company limits of 2% of total sales. That Coach stores would be concentrated in two cities will help to reduce marketing costs further as well.

Marketing Objectives

The objectives for Coach in entering the Russian market are to establish for the company a strong presence in that market. Russia is one of the world's emerging markets for luxury goods, a function of that nation's increasing wealth, which is driven by oil and gas revenues. For the past five or six years, major European luxury brands have been entering the Russian market, as demand among the newly-rich. The market is characterized by high growth, but from a low base (No author, 2006). Many luxury brands have become well-known in Russia in recent years. One survey indicated that Versace and Dior were known to 95% of Russian consumers, with many other brands having almost as much name recognition (Time, 2007). The marketing objectives for Coach should therefore be twofold. The first objective should be to reach the same brand recognition levels as the most famous luxury brands among Russian consumers.

The second objective should be to convert that brand awareness into sales. Coach should set objectives for both total ruble sales and for sales growth in the country for the next five years. 100% year over year growth is a reasonable expectation in a new market, and the total sales should be estimated on the basis of Coach's normal store sales elsewhere in Europe. There should also be objectives for the number of stores opened, for example a Moscow store in the first year; another Moscow store and a St. Petersburg store in the second year, and more from there. It is important that the company have a number of different metrics to guide its expansion policy in Russia, so that it has a sense of the best approach.

Target Market

Russia has a population of 139 million people and a per capita income of $15,100, placing the country in the middle of the world's income levels (CIA World Factbook, 2010). However, there is a considerable amount of income disparity in Russia. The nation's economy is driven by oil and gas revenue, so those who are rich are often very rich. Many of these wealthy have only in the past five, ten or fifteen years acquired their wealth. The nouveau riche are known for their profligate consumption, but there are relatively few of them in a country where 40% live under the poverty line (Volkov & Denenberg, 2005). While this class of Russians was known for its fascination with luxury brands, there is evidence that Russia's newer wealthy class are shifting their tastes to more independent looks (Groskop, 2008).

The target market therefore is going to be part of the older demographic, for whom luxury brands are directly equated with status and style. In Russia, these will tend to be females in millionaire families, aged 35 and up. These buyers will tend to live in either Moscow or St. Petersburg, where almost all of Russia's wealth is held. They are worldly, and are often familiar with luxury brands from their travels. These Russians are well-traveled and consider themselves among Europe's elite. They are usually educated, but most of the women do not work. Shopping is a pastime, and they will invariably have purchased luxury brands before, if not Coach specifically.

Financial Summary

The typical financial picture of a Coach store is that around 62-64% of revenue comes from handbags, 28-29% comes from accessories with other products making up the remainder. Price points are typically high, and stores do a relatively low volume as a result. There are only 44 freestanding Coach stores internationally, and a total of 159 international locations of all types (Coach 2009 Form 10-K). This includes the major markets of Japan and Greater China. Coach typically enjoys healthy markup on their products which allows the company to thrive even on low volumes.

The marketing outlay is typically around or below 2% of net sales. This is expected to be the case for Russia as well, although there may be an additional $1 million in promotion surrounding the launch of the first store. There are also costs associated with direct marketing, something that Coach typically uses to help sell its products. Catalogs are shipped, and emails are sent to customers on mailing lists. To adopt these tactics in Russia would add a further $1 million to market expenses, in part because of the need for Russian language promotion.

Entering the new market is made more cost effective, however, because Coach will only need to enter Moscow and St. Petersburg. The other Russian cities either lack the wealth to support a Coach store or they lack the prestige. Moscow is the economic hub of the country and by far its richest city, while St. Petersburg is the cultural capital and has its own luxury goods scene. The costs therefore should not exceed the 2% of sales threshold for marketing, even with the added costs of converting the marketing campaigns to Russian.