In economics, the demand for luxury goods increases with an increase in income. Luxury goods have a high elasticity of demand because people tend to purchase more as they grow wealthier. Luxury goods industry has been experiencing a steady increase over a few years now. As a result of the appealing use of luxury products by wealthy people in society, growing demand has resulted in a global 9% annual market growth.
Coach, Inc. runs full-priced and flagship stores, which sell similar products at different prices. Due to this double characteristic of the company, it faces fairly strong and less intense competition. The threat of new market entrants is minimized by the financial efforts required to build a brand name to compete with Coach, Inc. However, it is still one of the most attractive industries. Since luxury items are purchased for their quality, it is difficult for new businesses to build an image that can in order to penetrate the market, especially when the resources are scarce. Another factor that has given Coach, Inc. a solid competitive platform is the ability to bargain with suppliers. Every established leather producer fights to be associated with such luxurious brand name as Coach, Inc. or other globally recognized industry members which offer high-quality products.
In the luxury goods industry, competitors employ various tools in order to gain a larger market share. Firstly, the most important weapon is a high-quality product. Secondly, the use of celebrities to create a strong image helps increase product sales. Moreover, new product innovations and fashion trends are introduced to outweigh competitors who might have been offering the same products for over a long time. This implies that the pace of rivalry is becoming more intense because competitors are constantly using various strategic weapons in an effort to remain relevant.
The new generation has caused tremendous changes in the luxury handbags and leather accessories market. The current generation consumers have a different perspective towards luxury compared to the previous generation. The availability of the internet and other technological innovations that provide available information give consumers better negotiation power enabling them to keep track of fashion and get enough information before purchasing products. Currently, consumers also consider the services they get while purchasing luxury products. They tend to demand the best services for every expensive luxury product they purchase. With this increasing demand in customer service, the industry is likely to get more fierce competition in order to satisfy the customers’ demands.
The factors that determine the success of fine handbags and leather accessories for ladies include the use of the internet to sell products, the production of high-quality goods, the reduction of costs through outsourcing, decent advertising strategies, an esteemed brand name, a global distribution network, and innovative abilities.
In order to compete in the ladies handbag and leather accessory industry, Coach, Inc. is using the strategy of differentiating itself from its competitors. It achieves this aim by offering new high-quality bags on a monthly basis. It also selects a specific quality of leather, hence causing a high demand for its bags. Unlike other members who provide high-quality products at a higher cost, Coach, Inc. offers affordable rates in their factory stores. Its other strategy is offering the best customer service and warranty for damaged bags during shipping. These strategies provide it with a competitive advantage, which has translated into the superior financial and market performance as explained by the 19% market share in 2002, and 26% – in 2006.
On one hand, the key strengths of Coach, Inc. include excellent customer service, high-quality leather, innovative styles, low prices offered at factory stores, new designs on a monthly basis, retail distribution channels, and outsourcing that leads to low costs. The weaknesses, on the other hand, involve a wide range of women products with only 2% of male products; distribution through outlet stores, which dilute the brand; and low performance of full-priced stores compared to the factory stores.
Coach, Inc. has a number of opportunities, such as the emergence of new global markets, which imply a growing demand, and the growing worldwide consumer income. The main threat that Coach, Inc. faces is the competition from other brands, such as Dolce & Gabbana and Prada among others. It is also experiencing brand diffusion since other brands are offering similar products to middle-income countries.
The first suggestion is to check the financial pattern of the company over the past few months. This decision will help the company make necessary adjustments according to the industry changes. Firstly, the business should focus more on the factory stores and less on the full-priced stores. Secondly, it should be ensured that the current market is saturated enough before making new market entries. This approach will make Coach, Inc. the luxury products pacemaker.