Coach Inc. operates in the luxury goods industry where it sells leather handbags, accessories and other leather products. The firm is among the best-known luxury brands in this growing submarket in North America and Asia. Within the luxury goods market there are three sub-categories: haute couture, traditional luxury, and accessible luxury. When Krakoff joined Coach in 1996 he helped position the company to lead in the “accessible luxury” segment. By 2000, Coach was dominating this market along with other competitors such as Michael Kors, Salvatore Ferragamo, Prada, Giorgio Armani, Dolce & Gabbana, and Versace.
The luxury goods industry had a direct bearing on Coach’s profit potential. This effect can be explained by looking at the environmental layers in detail, moving from Coach’s general environment to its task environment. Starting with the global environment, the PEST model categorizes the external factors that created both opportunities and threats for the firm. Piracy and counterfeiting issues were important political/legal factors that Coach, Inc. had to take into consideration. Luxury brands found itself caught in a legal fight against the counterfeiter.
They determined that it was financially and operationally beneficial to work together to create best practices to implement international piracy enforcement. Economic factors negatively impacted the global luxury goods market by slowing the economy, dropping stock prices, and creating poor general economic conditions. These luxury brands were affected especially by the economic slowdown and financial crisis that took place between 2007-2009. During this recession, consumers in most income brackets had to cut back on discretionary purchases, which ncluded luxury goods. Moving out of the United States recession in the luxury goods market became more desirable. On a global scale the luxury goods market has even greater potential in growing markets such as China and India. A shift in sociocultural and demographic factors such as interests, desires, and lifestyles account for an increase in luxury goods market. The accessible luxury market benefited as they started selling goods to consumers a new income bracket, the middle-income consumers.
The market can also attribute their grow to the emerging markets, such as China and India, who provided a boost to the market because of the increased wealth levels and standard of living. Technological factors amplified the luxury good market as they invested in technology. Some of these technological investments include effective advertising and television programming. Luxury good sales saw an increase as the market of online sales revolutionized. In addition, new instore processes involving technology were implemented such as Coach’s “Special Request service” which made the process more efficient.
The luxury good industry is described to be less attractive to potential entrants to the market. The profit potential that exist in the luxury goods industry could be better understood through an analysis of Porter’s five forces model. Starting with the threat of entry, the industry is unlikely to have new entrants because of the sustained competitive advantages of the existing successfully luxury brands. Leading companies such as Coach, Michael Kors, Salvatore Ferragamo, Prada, and etc. all have brand name recognition due to their success and popularity.
According to the article, “To be unique and exclusive you cannot be ubiquitous. (Gamble, 2015, C-81) For instance, Coach, Inc. strengthened their brand by becoming a leader in their accessible luxury segment by focusing on being unique in this market. Coach, Inc. and the other popular brands, have strong personal identifications because of the strategies they put in place. For this reason, new entrants to the market will have trouble attracting consumers who stand strong with the popular brand because of their loyalty. The power of suppliers within the industry for the luxury good market is low as the industry is not very concentrated.
Materials to produce luxury goods, such as leather, are supplied in various countries throughout the world. For Coach, Inc. the case states, “All of the company’s leather products were manufactured by third-party suppliers in Asia. ” (Gamble, 2015, C-71) Since Coach and the other luxury brands are not limited in their choices of suppliers they can use their bargaining power to negotiate. Similar to the power of suppliers, the bargaining power of buyers in the industry is also low. Luxury goods are typically not purchased in large quantities, which drive the buyer power down.
Luxury brands in the industry also produce most of their sales direct to consumers, which decreases the buyer power of the wholesalers, such as Macy’s, Dillard’s, Nordstrom, Lord & Taylor, and Saks Fifth Avenue. Substitutes of the products made in the luxury do exist, but do not pose a threat. Examples of substitutes are counterfeit items, which priced low are and they meet the same customer needs. Counterfeit goods do not threaten the luxury good market because consumers buy luxury goods for their quality and value of the product.
Luxury brands build a trust and loyalty with their consumers that when they purchase their products they will get high quality products as expected. On the flip side, the rivalry among existing competitors in the luxury goods market is said to be high. Companies within the luxury goods industry characterize as a oligopoly as these firms only have some pricing power, differentiated products, and high entry barriers. Many of these products race to become a leader in each segment of the luxury goods market and compete to expand into new emerging markets.
For instance, Coach struggled to compete against the French and Italian brand names such as Louis Vuitton, Gucci, and Prada. Coach also faced intense competition within the United States with brands such as Michael Kors and Kate Spade. In order to differentiate themselves from the competition they diversified the products under their brand. With a strong focus for most of the brands to defend their market share and end the product life cycle, the luxury goods industry is characterized in the maturity stage.
Many of these luxury goods firms aim to maintain their strong brand recognition in the existing markets. The luxury goods industry is said to have few new adopters. Instead of worrying about new competition many of the firms focus on the existing competition within the market. Many of the luxury good brands to are working harder to provide differentiated products from their competition. For instance, Coach, a brand who developed well made leather purses expanded their line of products offered to develop accessories, luggage, and even eyewear.