Given the popularity of luxury goods in Japan, there is a disincentive for politicians to treat luxury goods in a way that would make them more expensive or less accessible. There is some degree of economic risk. While the luxury goods market in Japan has thrived throughout much of that nation's prolonged economic slowdown, recent declines in the Japanese luxury goods market indicate that the sector's historic robustness may be under threat (Kirby, 2009; Degen, 2010). The outlook for the Japanese economy remains relatively poor for the coming years. With a low interest rate of 0.1%, there is little room for monetary expansion, so it may be years before Japan's economy picks up significantly with strong external purchases of Japanese goods (Ujikane & Otsuma, 2010). This could have an impact on luxury brand sales.

Another economic risk comes in the form of currency risk. The Japanese market has the potential to be a significant one for Coach, so the company must consider the currency impact of the yen. When the value of the yen falls against the U.S. dollar, this devalues profits that come from Japan. As such, entering this market introduces an element of financial risk to the organization, which will necessitate either currency hedging or operational hedging (i.e. sourcing goods in Japan).

There is little competitive risk in the Japanese market. In many cases, luxury brands complement each other -- Coach focuses on handbags and leather goods while other brands focus on different products. This specialization results in a low intensity of rivalry, especially when consumers are price takers. Luxury brands tend to strategize globally as well, so when one market falters they focus on other markets. At present, mainland China is the market most luxury brands are focusing on (Kirby, 2010). The behavior of luxury brands is relatively unique as well -- they will not escalate competition by lowering their prices as this would devalue their brands. As such, there is not expected to be a strong competitive response directed at Coach if it enters the Japanese market.

Japan represents only moderate operational risk. Day-to-day operations will not vary much in the Japanese market...

The company may find that costs are higher in Japan, but spending is also higher. Operational risks such as theft are minimal in Japan. Entering the Japanese market is not expected to introduce any significant new risks to Coach.
Therefore, it is recommended that Coach enter the Japanese market. There is likely to be a large pent-up demand for Coach products in Japan. There are no significant risks, save that once a market share is established, it may not grow.

Works Cited:

Prasso, S. & Brady, D. (2003). Can the high end hold its own? Business Week. Retrieved November 2, 2010 from http://www.businessweek.com/magazine/content/03_26/b3839107_mz033.htm

CIA World Factbook: Japan. (2010). Retrieved November 2, 2010 from https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

Japan Today. (2008). Japan ranked 18th in int'l survey on gov't corruption. Japan Today. Retrieved November 2, 2010 from http://www.japantoday.com/category/crime/view/japan-ranked-18th-in-international-survey-on-govt-corruption

JETRO. (2010). Japan is the world's most concentrated source of revenue for luxury brands. Japan External Trade Organization. Retrieved November 2, 2010 from http://www.jetro.org/content/361

Degen, R. (2009). The success of luxury brands in Japan and their uncertain future. IPL Working Paper. Retrieved November 2, 2010 from http://www.globadvantage.ipleiria.pt/wp-content/uploads/2010/01/working_paper-52_globadvantage.pdf

Kirby, N. (2010). Luxury brand's growth miracle. Articles Alive. Retrieved November 2, 2010 from http://www.articlesalive.net/Art/55030/117/Luxury-brand-s-growth-miracle.html

Ujikane, K. & Otsuma, M. (2010). Japan policy tinkering leaves huge risk to growth. Bloomberg. Retrieved November 2, 2010 from http://www.bloomberg.com/news/2010-08-30/japan-policy-tinkering-leaves-economic-outlook-with-huge-downside-risks-.html

Sanchanta, M. (2010). Fierce pricing: A luxury store turn-off. Wall Street Journal. Retrieved November 2, 2010 from http://blogs.wsj.com/japanrealtime/2010/09/08/fierce-pricing-a-luxury-store-turn-off/