Euporia Knight Strategic Management Coach Case
The scope of rivalry in the industry was global with Italian luxury goods companies accounting for 27% of industry sales In 2005, French luxury goods companies controlling 22% of the industry, Swiss companies holding a combined market share of 1 9%, and U. S. Companies accounting for 14% of industry revenues. Most luxury goods manufacturers were vertically Integrated Into the operation of retail stores. Signature Like Airman, Versa, and other designers were handcrafted under the supervision of the designer. Coach products and diffusion lines offered by other luxury companies were produced by low-cost contract manufacturers.
Traditional luxury consumers in the U. S. Ranked in the top 1% of wage earners with household incomes of $300,000 or better, a growing percentage of luxury goods consumers earned substantially less, but still aspired to own products with higher levels of quality and styling. Manufacturers of the finest luxury goods sought to exploit middle-income consumers’ desire for such products by launching “diffusion lines” that offered “affordable” or “accessible” luxury . Key differentiating features Include product quality, Image and reputation, customer service, styling, and store ambiance. ) What Is competition Like In the luxury goods Industry? What competitive forces seem to have the greatest effect on industry attractiveness? What are the competitive paeans that rivals are using to try to outnumber one another in the marketplace? Is the pace of rivalry quickening and becoming more intense? Why or why not? The competition for luxury goods is strong due to low barriers for entry One of the competitive forces that have a great effect on industry attractiveness is the threat of new entrants and how hard it is to build up brand name that can compete with the likes of Coach, Louis Button, Dolce & Cabana, and Versa.
Another Luxury items are known for their quality and their status. It can prove as difficult for new entrants to build this status. Even If their product is high quality competing against well established brands may be challenging. Another competitive force can be the bargaining power with suppliers. Some leather manufactures would rather be linked to larger brand names such as Coach and Louis Button. The competitive weapons that rivals are using to try to outnumber one another in the marketplace are mostly Some brands my use celebrity star power to help them sell products and promote the brand image.
New fashion trends and product innovation is another weapon used in the luxury industry. Some brands hold annual fashion shows to promote the attest fashion trends. Lastly providing superior customer can lead to customer satisfaction as well as brand loyalty. 3) How is the market for luxury handbags and leather accessories changing? What are the underlying drivers of changed how might those driving forces change the industry? The market for the luxury handbags and leather accessories is highly competitive. The market for luxury handbags and leather accessories is changing rapidly.
The middle class is expanding and become younger and they are gaining disposable income. They also have different perspective on change, the are more educated when it comes to their finances , and are knowledgeable about the latest fashion trends. The drivers of change The growing demand for ‘accessible luxury goods in developed countries. Consumer tendencies to adopt a “Trade up, trade down” shopping strategy had allowed spending on luxury goods to grow at four times the rate of overall spending in the United States.
Both retailers and luxury goods manufacturers had altered their strategies in response to the changing buying preferences of middle-income consumers in the U. S. Rising incomes in developing economies. In 2004, the worldwide total number of shoulder with assets of at least $1 million increased by 7% to reach 8. 3 million. The number of millionaires was expected to increase another 23% by 2009 to reach 10. 2 million. With much of the increase in new wealth occurring in Asia and the Eastern Europe, demand for luxury goods in emerging markets was projected to grow at annual rates approaching 10%.
Rising incomes and new wealth had allowed Chinese consumers to account for 11% of all luxury goods purchases in 2004. The Chinese market for luxury goods was predicted to increase to 24% of global revenues by 2014, which would make it the world’s largest market for luxury goods. Increase in counterfeiting of luxury goods. In 2006, more than $500 billion worth of counterfeit goods were sold in countries throughout the world. About two-thirds of all counterfeit goods were produced by manufacturers in China. 4. What key factors determine the success of makers of fine ladies handbags and leather accessories?
Luxurious image and reputation for quality. Luxury goods companies were required to possess adequate brand-building skills to develop and maintain an image of luxury. In addition, the procurement and production processes of luxury goods companies must ensure the company’s products were of the finest quality. Luxury lacked a prestigious image and reputation for quality. Fashionable and distinctive designs. Luxury handbags manufacturers and marketers were also required to maintain a fresh lineup of distinctively-styled products.
Most luxury goods manufacturers retained their most popular items in their product lines for years (and sometimes decades). The development of distinctive and voguish handbags and leather accessories resulted from the artistic talents of developers and the ability of marketers to match creative efforts with consumer preferences. Aesthetically-pleasing store design and ambiance. Purchasers of luxury handbags expected to shop in retail stores that were aesthetically-pleasing and that provided a comfortable shopping environment. ND interior design elements of the store helped shape the company’s overall image. Superior customer service. As with the need for visually-pleasing store designs, luxury handbag retailers were required to maintain knowledgeable and polite sales staffs. Sales personnel were critical to consumers’ purchasing experience, since they had the ability to influence the shopper’s attitude and comfort level, recommend handbags for different occasions and apparel, and inform the customer about special order items.
Luxury goods makers were also required to offer retail customers high- quality after-the-sale service in the event a handbag or leather accessory needed to be returned or repaired. 5) What is Coach’s strategy to compete in the ladies handbag and leather accessories industry? Has the company’s competitive strategy yielded a sustainable competitive advantage? If so, has that advantage translated into superior financial and market performance? Coach’s strategy to compete is based on to image, product quality, styling, customer service, and attractive retail stores.
Also Coach’s production outsourcing arrangements gives them the ability to price its handbags between $200-$500, giving them a cost advantage. Discount factory stores allows Coach to maintain a year-round full price in its full price retail stores. This increased Coach’s growth. These stores out preformed full price stores in terms of comparable store sales growth during 2005 and 2006, with comparable factory store sales increasing by 31. 9% during 2006 and comparable full price store sales increasing by 12. 3% during the year. Coach distributed handbags for sale to department stores in the U.
S. Coach had eliminated 00 department store accounts between 2002 and 2006 as the share of the U. S. Retail market held by department stores declined from about 30% in 1990 to approximately 20% in 2000. Coach’s wholesale distribution in international markets involved department stores, freestanding retail locations, shop-in-shop locations, and specialty retailers in 18 countries with Japan making up the majority of Coach’s international sales. Coach products in Japan were sold in shop-in-shop department store locations, full price Coach stores, and Coach factory stores.
The company had 118 retail locations in Japan in 2006. Coach’s expansion plan for Japan called for at stores to 15. Coach management believed Japan could support 180 stores and that the increase in stores would allow the company to increase its market share in Japan to 15%. As of late-2006, the company’s strategy had yielded a 1400% increase in its stock price since the October 2000 PIP 6) What are the resource strengths and weaknesses of Coach Inc.? What competencies and capabilities does it have that its chief rivals don’t have?
What new market opportunities does Coach have? What threats do you see to the company’s future wellbeing? Coach’s resource strengths/competencies/capabilities Design process that developed new products based upon market research rather than artistic preferences of an individual designer. Procurement contracts that guaranteed the company access to the highest quality leathers. Offshore production contracts that delivered high product quality and low manufacturing costs. Licensing agreement with the Moved Group to make Coach-branded watches available in Coach retail stores.
Licensing agreement with Similar Corporation that gave Similar the right to manufacturer and market Coach-branded ladies footwear. In 2006, Coach footwear was available in 500 locations in the U. S. , including department stores and Coach retail stores. Licensing agreement with Monarch Aware that made Coach- branded aware and sunglasses available in Coach retail stores, department stores, and specialty aware stores. Coach frames for prescription glasses were sold through Marathon’s network of optical retailers.
Strategic alliance with Lutz & Pathos to make women’s knitwear available in Coach stores. Licensing agreement with Esteem Lauder Company to develop a Coach-branded fragrance. In-house architectural roof that created designs for Coach retail stores. Attractive store designs that were rated 10th among luxury brands in a 2006 Luxury Group survey of 2,000 wealthy shoppers. Direct-to-consumer channels in the U. S. That included 218 full price stores, 86 factory stores, Internet sales, and catalog sales. Wholesale accounts with approximately 900 department stores in the U. S. 18 retail stores in Japan 108 wholesale locations in international markets outside Japan Largest seller of luxury handbags in the U. S. With a 25% market share Second largest seller of luxury handbags in Japan with an 8% market share Coach’s resource weaknesses/ competitive deficiencies and liabilities Coach is not present in Europe Products for men accounted for only 2% of the company’s 2006 sales Business cases accounted for only 1% of sales in 2006 Luggage accounted for only 1% of sales in 2006 Coach’s market opportunities Pursue growth in rapidly growing international markets for luxury goods such as India and China.
Further expansion into additional product categories to leverage the Coach brand name. Develop retail locations in Europe Develop new product lines targeted to men External threats to Coach’s future well being Consumers may find diffusion lines offered by more prestigious luxury goods makers more appealing than Coach products. Any recessionary effects in the U. S. Or Japan may cause middle-income consumers to abandon aspirations for luxury goods. Factory stores. 7.
What recommendations would you make to Eel Frankfort to improve the company’s competitive position in the industry and its financial and market performance? The company should continue to develop distinctive and fashionable handbags since rivalry includes an important focus on the distinctiveness and quality of products. It’s important that they continue to produce a steady stream of actionable handbags every month or more often. The design teams should also develop new lines and new models of existing lines to sustain growth in sales.