Coach Is a Luxury Goods

Coach is a luxury goods maker with $3.6 billion in revenue, derived from own-branded stores around the world. The company, faced with struggling Western economies, is looking for growth overseas and has identified China and India as two of the more viable markets. In order to guide this expansion, the company's HR strategy will need to facilitate this growth.

The best approach for this strategy is the integrated model, combining elements of the resource-based model and the control-based model. This strategy emphasizes a paternalistic and commitment-based approach to human resources development. The recruitment focus will be on internal sourcing, as employee retention is important to maintaining high customer service standards. Motivation will be based largely on opportunity, of which there is expected to be a significant amount in the coming years. The model also emphasizes increased outcomes-based measuring, which can aid in training as well as identifying and classifying potential managerial candidates.

There are some limitations with respect to this model. A global HR model does little to address local differences, some of which could be significant particularly in China. In addition, this model relies on measures that may not be universally viable, such as customer satisfaction indices. However, this approach will allow Coach to take a more active role in developing leaders, and this will allow the company to grow in these new markets more quickly, while maintaining high standards. In addition, this approach is congruent with the key success drivers for the firm both in the past and moving forward into the future.

Introduction

Coach Incorporated is a producer and marketer of luxury leader goods, in particular handbags, business cases and other accessories. The company began in New York in 1941 and has since expanded around the world. Coach markets under its eponymous brand name and the Poppy brand. The company has earned a reputation as a top luxury brand, committed to high quality goods and excellent customer service (Coach.com, 2010). Coach's sales in fiscal 2010 were at $3.607 billion, up from $3.23 billion the year before. The company has remained profitable through the economic downturn, with a 2010 net income of $734 million compared with $623 million the year before. This is in part due to the company's ability to open new markets and due in part to the fact that the market for luxury goods is less elastic with respect to the state of the global economy than many other markets.

Coach is currently faced with the situation of developing a human resources strategy to take it through the next few years. Not only does this strategy need to address basic ongoing HR requirements, but it also needs to address a couple of specific strategic issues. The first is the ongoing recession, which may necessitate workforce reductions, although to this point that has not occurred with the company. The second is the desire of the company to continue to expand internationally. In this case, the focus of expansion in the coming years is with respect to the Indian market. This report will make the case for a new strategic human resources plan that will allow Coach to meet its strategic objectives over the coming years.

Background

The market for luxury goods in general has remained strong in the face of economic downturn. Unemployment and newfound poverty do not typically impact the Coach customer. Our target market generally has sufficient wealth to maintain consumption patterns even given a downturn. The economic outlook, however, remains poor. Economic growth in the developed world has stagnated. The recent UK budget and the likelihood of two years of legislative gridlock in the U.S. Congress will have contractionary effects on the economy as one specifically weakens the UK while the other will make it almost impossible for the U.S. To pull out the recession. Thus, growth in the global economy will be concentrated in areas outside of Western markets, in particular China, other Asian markets, Arab markets and India. This provides the strategic impetus to expand into these markets rather than focusing on the slow-growth Western markets.

The Indian luxury goods market is estimated at $3 billion for 2010, but growth is expected to be in the range of 25-30% until 2015 (Business Standard, 2010). This would make the market worth between $9.15 billion and $11.1 within five years. This growth is expected as a result of growth of India's middle and wealthy classes, a function of the country's improving economic prosperity. Indian consumers have only recently discovered luxury goods and have found this class of products to be aligned with their aspirations (Ibid).

Growth in the Indian economy is fuelling this burgeoning class of Indian luxury goods consumers. The Indian economy has averaged 7% growth per year since 1997, making it the fifth-largest economy in the world by purchasing power parity GDP at $3.57 trillion (CIA World Factbook, 2010). The wealthiest 10% of Indian households hold 31.1% of the country's wealth, a rate comparable with that of the United States (Ibid). Although India is a multilingual country, the de facto language of wealthy Indians is English, so there is no linguistic barrier for Coach. There are, however, some cultural barriers, and these are relatively unique such that our experiences do not adequately prepare us for Indian consumers, distribution channels, and government interaction. Thus, local competency will be required in order for Coach to properly penetrate the Indian market.

The Chinese market has even greater potential. With equally strong growth rates, the Chinese middle class is now burgeoning and many of them fit within the target market for Coach. As with India, however, there is a considerable learning curve with respect to the culture and government interactions. The company's experiences in Shanghai, Beijing and non-PRC Chinese cities (Taipei, Singapore, Hong Kong) has provided the company with a talent base that can help to lead the expansion into mainstream China.

This understanding of the external environment indicates that Coach will need to increase its HR capabilities with respect to the Indian market. Overall, the company will need to place increased emphasis in the coming years on the growth markets in the Middle East, India and Asia. The human resources strategy should reflect these needs by providing the company with the resources needed to meet these upcoming challenges.

Strategic HR Perspectives

There are three primary perspectives for human resources management. The first of these is the control-based model, which is based on the "way that management attempts to monitor and control employee role performance"; the resource-based model, based on "the nature of employee-employer exchange" and the set of employee attributes and behaviors; and an integrative model that combines these two approaches (Bratton, n.d.). The most appropriate perspective for Coach is the integrative perspective. In the luxury goods industry, employees are required to be creative, yet fit within company norms. There is a fairly limited scope of tasks at Coach, and the performance standards are high, which indicates the need for high levels of control within the organization. The company's customers are demanding, and expect high levels of quality and service, necessitating strict controls.

However, for the company to grow, it needs to foster leadership and creativity among its staff. In particular, entering new markets requires leaders who are able to manage the critical challenges involved in opening up new markets. The resource-based approach allows the company to build a staff that is able to meet the challenges associated with shifts in the global economic environment, including improving efficiency in developed markets and opening up new markets effectively. In addition, the company is faced with an intensely competitive external environment, in which dozens of major international luxury brands are competing to establish market share in India in order to capture the massive growth that is expected in that market over the coming decade.

Strategic HR Approach -- Resourcing, Learning and Development Elements

There are a number of policy implications of the integrated approach to strategic human resources management. The first is with respect to acquisition and development (Bratton, n.d.). This is focused on developing talent from within the company. While some of the company's upcoming HR needs will require the acquisition of some external talent, luxury brands tend to benefit strongly from internal consistency. Coach customers in India, for example, are likely to be familiar with the brand and therefore will have the same high expectations with respect to product and service as they would from a Coach location or product anywhere else in the world. This consistency develops not only from controls but from developing long-term employees that are intimately familiar with the company's workings and culture.

Thus, the HR strategy should focus on developing techniques to identify strong performers within the company and providing them with the training required to enhance their careers. A managerial skills inventory should be undertaken that uses a wide range of profiling techniques including psychological profiling, skills assessment and experience with the company to evaluate the leadership potential of the employees. The employees should be categorized not only in terms of their current capabilities but on the assessment's estimate of future capabilities as well. For example, an employee should be categorized on his or her ability to move up the corporate ladder, and the timing of such a move. If Coach wishes to enter India in 2011, then, the company would know which among the firm's managers is able to move into one of the new roles today, and which might be able to move into such roles in the future.

The second policy implication of the integrated approach to strategic human resources management is the locus of control (Bratton, n.d.). This is the control-based component of the strategy. The locus of workplace control at Coach focuses on outcomes and the primary means of employee acquisition are internal, so the policy prescription is focused on a commitment HR strategy. This strategy emphasizes training as a means to increase employees' competencies and outcome control (Ibid). The high consistency of service standards implies that the paternalistic model may also be of use. It is recommended, therefore, that the new HR strategy incorporate a paternalistic interpretation of the commitment strategy. The company must implement training programs, including those that are designed to help the company meet specific challenges such as training on Indian customs, logistics and government interactions. The company should also take control over the career paths of key employees, by moving them into key positions. For example, a manager of Indian descent that has been identified as having the potential to help launch a flagship store in Mumbai could spend some time working with the Indian and Muslim customers in Kuala Lumpur before transferring to Mumbai to learn about the back office aspects of Indian operations. This would not only demonstrate a strong commitment to developing top candidates, but it would also be paternalistic in that the company would take a high degree of control over the process.

Outcomes-based strategies are useful for companies that can easily measure employee outcomes. Therefore, Coach should improve its data-gathering and reporting with respect to key outcomes. The company needs to adequately tie specific employee behavior with the customer-focused outcomes approach. This would mean increasing the use of customer satisfaction, returns and sales figures in company training, the rewards systems and the employee evaluation process. By placing increasing emphasis on these measures and simultaneously providing key leadership candidates with the training and support needed to improve their outcomes-based scores, the company will be able to develop leaders that are able to guide expansion in Asian and Indian markets for the coming years.

Flowing from the specific geographic expansion needs, the HR strategy will also focus on some external acquisition, in particular from the regions where the expansion is most likely to be concentrated. This creates unique challenges. Candidates can be acquired on the basis of their experience in retail or on the basis of their personality traits, but they must be properly acculturated. Coach is an American company that has succeeded on the basis of performing specific tasks in specific ways to achieve a set of desired outcomes. As it is expected that new employees from India, the Middle East and other parts of Asia will be less familiar with the expectations of Coach culture, it is recommended that new hire training be improved.

Given the opportunity for rapid expansion in India in particular, it is important that the company develop as large a pool of managerial talent as possible. The recommendation for increased new hire training will have a significant benefit in the coming years because it will allow new employees with basic managerial skills to understand the systems they are expected to implement and the outcomes that they are expected to achieve. Future managers will come from this pool of new employees, if they are able to meet the company's high standards. Thus, in addition to the company's basic new hire training program, increased funding should provide enhanced skills assessment and culture training so that future managers can more easily be identified, allowing the company to take greater control over the careers of such strong candidates. Given that managerial training programs in India and Asia are unlike those in the West, it is likely that excellent potential leaders can be found in unusual places in these countries. This necessitates the increase in paternalistic attitude taken to the career development of new employees in India and Asia.

Strategic HR Approach - Reward Management & Performance Management Elements

Reward management within this model is focused on opportunity. One of the key tenets of the model is that Coach wants to build long-term relationships with its employees, and that this cannot be achieved by orienting employees towards quick financial gain. Key employees are more likely to be retained through the paternalistic process of providing training and opportunity to the best. There are significant challenges that need to be met by this company, especially with respect to international growth, and this strategy focuses on cultivating employees that are oriented towards meeting those challenges. Intrinsic motivation is critical to the strategy, and thus the rewards system will remain unchanged from a financial perspective but will instead focus on motivating the potential leaders within the company to pursue the wealth of internal opportunities that are expected to emerge in the coming years.

The control elements of this strategic management strategy emphasize performance management. The prescription for enhanced outcomes-based measuring specifically addresses the ability of the company to exert greater degrees of control over employees. The emphasis on outcomes is important, because it reflects the need for employees to be creative when necessary to achieve ideal outcomes for our customers.

Limitations of the Model

Despite the wealth of merits to this model, there are some limitations to this particular strategic HR strategy. In particular, the model seeks to blend creativity and tight controls. While these two ideal inputs are not mutually exclusive, they are not universally compatible either. The success of this strategy, therefore, is dependent on the experience of current executives and managers to impart on the remaining employees the timing of creativity in finding solutions. Should the training, the current managers and the experienced workforce be unable to help new employees refine this process, there will be missteps in customer service and this could undermine the company. That this fine balanced between strict processes and creative solutions offers this risk is reflected in the company's understanding of the need for a high retention rate. It is hoped that the tactics contained within this HR strategy will result in the desired high rate of retention, especially for key potential leaders.

Another limitation of the model is that it does not address directly the challenges of integrating a large new workforce into the company. If growth in strong new markets like China and India meets projections, Coach could add dozens of new stores in just a few years in both nations. Middle-class cities would be targeted, something that has only happened on a limited scale thus far. While experienced senior management would lead this expansion, a considerable wealth of new staff would be required as well. The current Coach system is predicated on slow growth that can be internally driven. The new system focuses on internal development of managerial talent, but the strategy does not entirely address the need for a much larger front-line workforce in these nations. For example, the strategy provides enhanced training to new workers as a means of developing better managerial talent in these regions over the long-term, but over the short-term this training does not address the risk of higher turnover and lower customer satisfaction rates.