Coach Inc.
Item 1
The financial outcomes and stock price performance have shown the financial stability of the Coach Company. In order to evaluate the financial performance of Coach, we will compare its two financial ratios with that of Dooney & Bourke Company. The net profit margin of coach for fiscal year 2009, 2010 and 2011 were 0.19, 0.20, and 0.21 respectively. The current ratio for Coach of the fiscal year 2010 and 2011 were 2.46 and 2.45 respectively.
The net profit margin for Dooney & Bourke Company for fiscal year 2009, 2010 and 2011 were 0.1, 0.15 and 0.13 respectively. Similarly, the current ratio for Dooney & Bourke Company for fiscal year 2010 and 2011 were 2.24 and 2.34 respectively. The two ratios are very important to these companies because they indicate the financial performance of the company. The current ratio shows the capability of the company to pay back its obligations and higher current ratio indicates the capability to pay back its obligations. From the current ratios above, Coach company has ability to pay off its obligations than its competitor Dooney & Bourke company. Similarly, the net profit margin indicates the efficiency of the company based on its ability to manage expenses, and a higher net profit margin indicates more efficiency. The net profit ratio above indicates that Coach is more efficiently than its competitor Dooney & Bourke company. Thus, Coach company is financially stable and more efficient in the industry compared to its competitor as indicated in the graph and chart below.
Although the Coach’s share price had decreased in 2007 due to the economic crisis, it rebounded after its profitability improved in 2010. The stock price performance of Coach is efficient compared to that of S&P 500. Thus, its financial results and stock price performance proved to be excellent.
Item 2
Coach Inc. operates in the luxury goods industry, which is the most profitable industry in the world. According to research done by the bank of America in 2011, consumers spent more than $224 billion on the luxury goods in 2010. The SWOT analysis of the industry will help to understand how Coach competes in the global market. The company compete globally, for instance in the regional competition trend, the US represented 30 percent of industry sales, Europe recorded 30 percent, China accounted for 20 percent and Japan recorded 11 percent of total industry sales (Gamble and Eastburn, 2012). Italian companies recorded 27 percent of industry sales, while French companies accounted 22 percent share, Swiss companies held 19 percent and US companies recorded 14 percent of industry sales. Similarly, the most significant luxury brands based on annual revenues in 2011 were Gucci, Hermes and Cartier among others. The handbags and leather accessories, which Coach produces was approximated at $28 billion in 2010.
However, the retail market for luxury goods was severely affected by the economic and financial crisis of in 2007 to 2009. The financial crisis made the customers in the most income categories reduce their purchasing power on the luxury goods. This created a 0.6 percent annual reduction in industry sales between 2006 and 2010. Although the sales decreased in the some regions such as US, Japan and Europe, emerging markets especially china became a main growth opportunity for the industry from 2006 to 2009. However, constant growth in China and other emerging markets are expected to increase the luxury goods sales up to 7.8 percent in 2015 that will achieve a staggering of $250 billion (Gamble and Eastburn, 2012). These emerging markets are expected to offer a significant boost to the luxury goods market because of the rapidly increasing wealth level and standard of living benefits.
The industry depends on creative designs, high quality, and brand reputation to attract customers and create brand loyalty. Brand exclusivity, customer-centric marketing and emotional sense of status and value drive Price sensitivity for luxury goods. The luxury goods manufacturers have tried to protect the profit margin by sourcing production to low wage countries. For instance, the industry has done intensive advertising and television programming in various regions such as the US, which was promoted prominent consumption. Meanwhile, the luxury goods industries have teamed up to combat counterfeiters, which have affected their financial stability in the global market. The external analysis based on the strength, weakness, opportunities and threats in the industry show the extent at which Coach can compete in the global market.
Item 3
Coach’s strategy and industry positioning are extremely effective. The company has provided distinctive and recognizable luxury goods of high quality and excellent value. The company positioned its brand in the lower part of the accessible or affordable luxury pyramid. This offers a larger opportunity relative to that of the most exclusive brands from competitors such as Dooney & Bourke Company. It targeted the top 20 percent of Americans by household income as opposed to the top 3 to 5 percent targeted by most European luxury brands. Coach Company focused on expanding its sales in China, Japan and the United States because these three top global luxury products spending groups. This enabled the sales in Japan to increase from $144 million in 2002 to $748 million in 2011, and its market share in the United Stated doubled since 2002 (Gamble and Eastburn, 2012). Since the collections are seasonal and are planned to be sold in stores for the short promotional period, production quantities are limited and are designed to reduce risk linked to owning inventory.
The company has embarked on flexible sourcing, which a strategy is meant to optimize the mix of cost and construction capabilities. For instance, all of its production was outsourced to contract manufacturers with vendors in China that accounted for 85 percent of its production requirements. Similarly, market research that was carried by Reed Krakoff offered the basis of Coach’s differentiated product line, which contribute to the company’s reputation for high quality and valuable goods. Its channels of distribution involve direct to customer channels and indirect channels. These included full- price stores in the US factory stores in the US, online sales and stores in Japan and China. For instance, in 2011, the company had 345 full price retail stores in the US which included70 percent of its total US outlets (Gamble and Eastburn, 2012).
Meanwhile, the company had 143 factory stores by 2011, and placed extra emphasis on factory stores since the onset of the financial crisis in which the number of factory stores decreased by 9 percent. The aim of factory stores is to target value-oriented clients who might not otherwise buy a coach product but that of Dooney & Bourke Company. This also helped the company to capitalize on the brand’s leading luxury image projected at their flagship and retail stores. Meanwhile, the company has used its distribution channel to capture emerging markets in China and Japan.
Despite employing effective strategies, Coach has faced threats from prominent European and North America luxury goods brands that had developed diffusion lines. World’s significant competitor such as Dooney & Bourke Company has established a retail presence and brand loyalty in emerging markets. Thus, despite stiff competition in the industry, Coach’s position in the luxury goods market is favorable.
References
Gamble, J., Eastburn, R. (2012). Coach Inc. in 2012: Its Strategy in the Accessible Luxury Goods Markets. New York: university of South Alabama.
