Coach Company Analysis

What are the defining characteristics of the luxury goods industry?

The luxury goods market comprises products targeted towards the world’s well-to-do consumers. The items include designer apparel, transportation like cars and motor homes, jewelry, high-end electronics and personal care products. The products are not necessities although fine food like caviar and beverages like wine and cognac are luxury goods.

What is the industry like?

The luxury goods industry is global in scope. In 2005, Italy (27%), France (22%), Switzerland (19%), US (14%) controlled a combined 82% of the worldwide luxury goods industry sales. In 2006, the industry was expected to grow by 7%. Much of this growth can be attributed to increasing income and wealth in developing European countries, China, and changes in consumer buying habits. Additionally, the entry of big box stores into the distribution chain has opened the market to middle-income consumers, who earn substantially less that the $300,000 household incomes of traditional luxury consumers. These middle class consumers aspire for the wealth and status image the luxury goods convey.

What is competition like in the luxury goods industry?

Competition is fierce in the luxury goods industry. Luxury good producers constantly have to design and introduce new models to meet consumer demand and desire for stylish trends. Luxury good producers fight for retail space in high-end retailers like Saks Fifth Avenue and Nordstrom. Additionally, producers operate their own retail storefronts and must rely on successful partnerships with retail real estate companies that manage property in affluent areas and high fashion districts. For example, 2 of Coach’s highest sales volume and highest profit margin stores are located in a Las Vegas casino and on Madison Avenue in New York.

Recent downturns in the global economy have forced many consumers to scale back on luxury purchases. Manufacturers have responded with “diffusion lines” that carry a sub-brand label. For example, D&G is the sub-brand of the marquee brand Dolce & Gabbana. The sub-brand is priced lower and typically has lower profit margins than the marquee brand. Luxury good producers have also focused expansion efforts in emerging markets in Eastern Europe, China, and India. These countries offer the potential for year-over-year market growth

What competitive forces seem to have the greatest effect on industry attractiveness?

Rivalry among competing sellers and buyers seem to have the greatest effect on industry attractiveness. The industry largely is based on trends and buyers can be fickle when trying to keep up with trends. The prices of handbags can range from hundreds to

thousands dollars. The upper class