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Coach Inc Company Analysis Essay

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Updated: May 8th, 2020

Introduction

Coach Inc. is an American company that specializes in manufacturing and distributing leather items such as handbags, briefcases, shoes, wallets, key chains, and umbrellas, among other accessories. It has its headquarters ers in Manhattan, New York, with branches in other American cities as well as non-American cities in Japan and China (Chevalier & Mazzalovo, 2008).

It has distribution outlets in France, Italy, Hong Kong, and South Korea. Its initial public offer (IPO) took place in 2000 at the New York Stock Exchange (NYSE). Since then, its financial health has multiplied. This paper provides an analysis of the company. The report reflects on strategic issues affecting the company, including elements of the industry and the company’s financial health, performance, and challenges.

Industry analysis

A luxury good is a commodity whose demand increases more rapidly than the increase in general income and can be termed as a necessity product whose demand increases less proportionally with the rise in general income.

These goods are characterized by high-income elasticity of demand. This is because as wealth increases, people tend to buy more of the product (Chevalier & Mazzalovo, 2008). However, demand declines when wealth declines (Needles, Powers, & Crosson, 2007). The most significant aspects of this industry are the tendency of brand quality and superiority of the quality.

The leather industry is one of the most advanced, profitable, but highly competitive and risky industries in America and other parts of the world (Chevalier & Mazzalovo, 2008).

This is partly because leather goods are mostly luxury commodities, and consumers tend to choose their goods depending on personal preferences, amount of money available and the type of the product (Chevalier & Mazzalovo, 2008). Moreover, to produce quality leather products, quite a lot of resources are pumped towards technology, labor, and expanding sale channels through advertisement. The industry earns over three billion dollars per year in America alone.

The luxury goods industry in both America and other parts of the country, especially where Coach has branches, is complex and diverse. In the United States of America, the domestic market consists mainly of handbags, briefcases, casual shoes, and auto upholstery. The leather commonly used is cattle hide (accounting for about 95%), while pig, lamb, deer, and reptile skins are also widely used as raw materials (Chevalier & Mazzalovo, 2008). Competition in the industry is quite high in all these countries.

However, during the 1980s, there was effective consolidation in America, resulting in fewer smaller companies and several large companies competing (Chevalier & Mazzalovo, 2008). Currently, the industry is dominated by large companies, which make about eighty percent. Most of these companies are based in New York State.

Competition is quite high here, but the recognition of brands saves Coach and the fact that coach offers the best price for its quality products. The entry of large market malls, hypermarkets, and supermarket chains has also increased competition for the market. The problem of counterfeit seems to be malignant in American and Asian markets. The phenomenon has caused most companies to lose sales (Chevalier & Mazzalovo, 2008).

Analysis of Competitive Forces

The entry of new competitors: consolidation of companies in the 1980s helped to reduce market competition in America, and there is a probability of the same occurring in China shortly. However, the threat is quite far from over. There is always a risk of new retailers entering the market. With the recent announcement by several multinational retail chains in various locations, Coach must be ready for stiff competition. For example, Wal-Mart has plans to open new branches in China, Hong Kong, and South Korea.

Other retailers are likely to follow suit. Economies of product differences have a put Coach Inc. at a better position, especially in America, where consumers recognize their preferred products based on price and quality. The problem of counterfeit products is prevalent, especially in China. Coach Inc. has won customer loyalty by offering high-quality products and at the best prices. Moreover, new entrants in America are barred by the high capital requirement, which is estimated to exceed twenty million dollars.

Competitive rivalry: in America alone, there are over one hundred companies, which specialize in manufacturing leather products. Of these, about seventy-two are located in New York State, where Coach’s headquarters are located. Most of these companies, such as JDS Corporation and Four Lions International, have also consolidated the international market, thus posing as some of the strong competitors for the company’s world market.

Purchasing Power: the number of customers has been increasing since the year 2000, especially because of the value and popularity of stocks in the IPO. Between 2000 and 2007, the world economy was performing well, and thus, the peoples’ wealth increased. In response, the people’s purchasing power increased significantly, a fact that increased the company’s sales in both the stock market and the goods market. The stock market increased at a rate of 1,400% while the annual growth rate in sales was 26% by 2007.

The threat of substitution: the company has always applied the best technology in the process of manufacturing, aimed at producing customized products which are customer appealing. Moreover, it is quite difficult for other companies to duplicate or produce the same brands since there is a factor of trade secrets in the manufacturing process, accompanied by research and innovation (Needles, Powers, & Crosson, 2007).

The power of suppliers: since the suppliers to the company are mostly livestock farms; there is a steady supply of raw materials and at constant prices — the company leverage on selecting reliable suppliers on contracts, as provided by the law.

SWOT Analysis

Strengths

The Company has an advantage on quality, price, and advertisement and thus consumer satisfaction. Increase in sales and the value of stocks has increased due to the positive public perception, alongside increased advertisement programs.

Weaknesses

Several areas need to be reviewed for improvement. These include the possibility of an upcoming global recession, which may lead to reduced sales.

The company has not been successful in reducing the chances of counterfeit, especially in China, where companies are known to duplicate other brands as theirs (Herman, Skylar, & Keck, 2007). While other companies have increased their outlets in Western Europe and Russia, Coach has put little or no effort in entering the market, which may lead to reduced sales in the future.

Opportunities

There are still many areas of commerce, which are yet to be utilized for profitability. This includes the intensification its web-based market to include online payment, mobile money which is fast becoming in use, especially in less economic convincing but equally significant markets such as India, Egypt, South Africa and Pakistan (Herman, Skylar, & Keck, 2007).

In these countries, there is also less competition when compared to the American and European markets. The company can increase its profitability if it focuses on these new markets (Herman, Skylar, & Keck, 2007).

Threats

There is the possibility of new market entrants in Asia and Europe. Specifically, Chinese companies are becoming more aggressive, and they are focusing more on middle-income countries, where large multinational like Coach have been reluctant to penetrate. There are also chances of reduction in sales in America due to a looming global economic recession.

References

Chevalier, M., & Mazzalovo, G. (2008). Luxury brand management: A world privilege. London, UK: John Wiley and sons.

Herman, P., Skylar, S., & Keck, G. (2007). The HIP investor: make bigger profits by building a better world. London, UK: John Wiley and sons.

Needles, B., Powers, M., & Crosson, V. (2007). Principles of accounting. New York, NY: Cengage Learning.

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