Jenny, Paul, & V

Business Activities Manufacture and sale of luxury: Women's’ purses, wallets Women's’ accessories, jewelry, sunglasses, apparel, shoes Luggage Some items for men

Industry Industry: NAICS: 316992 Women's Handbag and Purse Manufacturing Product Portfolio Includes: handbags, purses, wallets, luggage, apparel, accessories, and gift items for women (primarily) and men. Luxury Global luxury goods market growing due to increasing incomes and wealth in developing countries, aspirations of US middle class. Prevalence of discount retailers left more discretional income for luxury. US luxury spending grew at about 4 times rate of other spending in USA. GROWTH INDUSTRY

Environment: PEST Political Potential backlash against sourcing arrangement Tariffs, import/export restrictions Economic Luxury, discretional items more sensitive to economic declines Rising price of inputs (raw materials, shipping, fuel labor) Social Increasing trend of quintile disparity “spend down, trade up” Environmental, social movements Technological Efficiency gains from technological advances Internet purchasing of personal consumer items changes buying habits

Industry Analysis: Porters 5 Threat New Entrants Threat of Substitutes Buyer Power Supplier Power Competitive Rivalry LOW H I G H HIGH HIGH MODERATE

50% market share of luxury purses in USA Industry growing, projected to continue to grow Market Growth Low<------------------------------->High Market Share High<------------------------------->Low ? Position Analysis ?

Financial Performance

Inventory Turnover: 2.01-2.05 Industry Average: around 4.0 Gross Profit Margin= .6985 Industry Average= .494 Net Profit Margin: .234 Industry Average: around .10-.15 Financials 2006

Sales & Distribution Factory Stores: test models, discontinued models, special lines, overstock discounted 15-50% off retail located at least 50 miles from full-price outlets Full-Price Outlets: higher level of service full price most sophisticated, high-price items, demanded items, specialty items depending on location high-profile, trendy, urban locations Internet: items available to purchase through website does not engage customer in shopping experience Net Sales 2006 $, Brick/Mortar Stores

Positioning & Marketing Accessible luxury Quality product—long lasting Quality service—high level of customer service, lifetime product warranty Trendy, fashionable, “active”

Demographics: Women Most frequent customers are around 35 years old Middle Class and Up College educated Psychographics: “aspiring” upward social movement conspicuous consumption Brand loyal Factory Stores Full Price Target Market: 35 years old College educated Single or newly-married working woman $770 annual spending “discount shopper” 45 years old Married with children Professional $1,100 annual spending “fashion first”

Distribution Mix

SWOT Strengths CRM: Excellent Customer Service, High Satisfaction Strategic Alliances: cobranding of non-purse items (ex:watches) Distribution Chain: several venues, segmented strategy Quality: recognized as high-quality, has brand equity Product: monthly introduction of new designs, maintains customer interest in brand, good market research process Loyalty: distribution chain (very select) & customer service ensures high-involvement purchase, increases sense of exclusivity and generates higher brand loyalty Production Strategy: outsourcing reduces costs, many options reduces supplier power Price: pricing strategy attracts wider market, cost leadership within luxury purse market Weaknesses Factory Stores outperform full-price High cost for new designs, manufacture, product variations Peripheral product areas account for small % of sales, higher cost, lower margins (ex: mens accessories{2%}, outerwear{2%}, and luggage{1%}) “Middling Strategy”: taking into account the whole women’s purse industry, brand is mid-price. Opportunities Emerging markets: growing demand for luxury goods Increased wealth in Asia, Mexico, Middle East… Increase in discretional income in US: “spend down, trade up” Expand product portfolio into other luxury goods Threats Counterfeiting (illegal) Brand/design imitations (legal): continual new designs makes it more difficult to defend ©/™ due to likelihood of overlap by competing brands Increased competition from high end, who are beginning to create lower-priced options similar in price Rising tariffs on luxury goods Brand dilution/loss of brand equity through discounting, over expanded product line, loss of exclusivity as becomes more widespread

Problems Primary: Sustaining market share: -Threat of substitution: Coach operates in industries of discretional spending, which makes threat of substitution high. Moreover, fashion industry notoriously fickle. Secondary: Brand Dilution: -Factory Stores, discounts, and greater accessibility to, popularity of brand may contribute to brand becoming overly prevalent. Brand appeal based on exclusivity. Loss of brand equity, dilution of. -Coach bags, while distinct, come in a plethora of styles and designs, making them less easily identifiable than brands with only a narrow range of designs/styles Counterfeiting/Imitations: Ever present problem for industry, exacerbated for Coach due to wide product range

Possible Actions Expand product portfolio, cobranding Develop accessories around purses—themed, matching, to encourage people to buy the whole “outfit” Halt construction of factory stores Foreign expansion Expand in the USA  Further develop product lines for men Decrease frequency of new product launches to protect product distinctiveness Develop an ultra-high end line Create portfolio of lower-priced items to capture more customers

Recommendations Pursue Foreign Markets in which incomes are rising Focus on full-price stores in these markets Position as the “American Luxury” option Focus on Full-Price Stores in the USA to avoid loss of brand image caused by further development of discount stores Create an ultra-high end line of purses and products with price points high within industry. Ultra high-end in industry generally range between $20,000-$100,000. Purpose not necessarily to generate high sales, but enhance luxury image Place with fashion models, compatible celebrity endorsements, couture fashion shows and lines Non-marketing recommendation: Seek gains in inventory efficiency