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COACH INC. IN 2012:

ITS STRATEGY IN THE

ACCESSIBLE LUXURY GOODS MARKET

STRATEGIC MANAGEMENT

MBA ENGLISH PROGRAM #8

CHULALONGKORN UNIVERSITY


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CONTENT

Topics Page

Question 1 1Question 2 8Question 3 10Question 4 11Question 5 33Question 6 39Question 7 45Question 8 53Question 9 57

Question 10 59Question 11 73Question 12 75Question 13 76Question 14 79Question 15 81Question 16 86Question 17 94Question 18 148Question 19 161

Question 20 172Question 21 177Question 22 179


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Coach Inc. in 2012: Its Strategy in the Accessible Luxury Goods Market

______________________________________________________________________________

Question 1: Describe and summarize the history, development, and growth of the company

over time.(Including best selling goods or services, sales revenue, market share and so forth.)

Answer:

Coach was founded in 1941 as a family business when Miles Cahn, a New York Cityleather artisan, started to produce ladies handbags. Coach became popular because it providedsuperior quality leather goods in classic style. Afterward, they generated the loyalty customers bythe initial of 12 unlined leather bags. Over the time, the company grew at the steady rate becausethey created the new designs and set the price 50% lower than other luxurious brands. Moreover,they established the account with retailers and opened own-stores which sold Coach Handbags andthe leather accessories.

In 1985, Coach was sold to Sala Lee, a food and consumer goods producer. Although thecompany gradually built a strong reputation of the classic leather handbags, its performancedropped as consumers had higher interest in French and Italian brands- Gucci, Prada, LouisVuitton, Dolce&Gabbana and Ferragamo. This caused the annual sale growth droppedsignificantly.


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In 1996, Sara Lee entrust the handbag division to Lew Frankfort. Franfort hired ReedKarkoff, a top designer from Tommy Hilfiger, to be creative director. At Karkoffs mercy, Coachbelieved in market research, so they conduct the survey, the focus group and market test to knowthe consumer insight which allowed Coach to know about styling, comfort and functionalitypreferences. From these practices, Coach was able to launch new collections every month.Moreover, Franforts also redesigned the flagship store to be contemporary new design, as well as,enhanced the image of its factory stores.

Coach had a companys policy to outsource the production. The outsourcing agreementallowed Coach to consumers who would not be interested in luxury brands. At the same time, itsquality and styling also satisfied traditional luxury consumers. Women Wear Dailysurvey revealedthat due to Coachs quality, styling and value mix, the affluent women in U.S. ranked Coach aheadof much more expensive luxury brands such as Hermes, Ralph Lauren, Prada and Fendi.


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Coach was able to lead in the accessible luxury segment of the leather handbags andaccessories industry and went to public in October 2000. Coachs annual sales growth wasquadrupled from $555 in 1999 to more than $4.2 billion in 2012. Anyway, its share price fall in2007 and recovered in 2010. According to Coachs revenue compared to its competitors, Coachhad higher market share than Gucci, Kate Spade and Michael Kors.

The companys array of product included handbags, leather accessories and outerwear.Coach continually expanded product offering by licensing agreements for watches, footwear,eyewear and fragrance. For companys product mix, handbags valued 63% of 2011 sales, whileaccessories and other products made up 27% and 10%, respectively.

Handbags


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Wallets


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Accessories


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Outerwear

Watches


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Footwear

Fragrance

Eyewear


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Question 2: Companys business model.

a) Identify all the activities associated with selling something (such as finding and reaching

customers, transacting a sale, distributing the product or delivering the service and so on).

Are there any innovation can you reveal?

Answer:

Coach use multichannel distribution model which included indirect wholesale sales to third-

party retailers but focused mainly on direct- to- customer sales. In 2012, Coach operated 345 full-

price retail stores and 143 factory outlets in North America, 169 stores in Japan and 66 stores in

China along with internet and catalog sales. The main proportion of company 2011 net sales came

from the direct- to- customer segment which equaled to 87%. Coachs full- price stores were

designed by an in- house architectural group to enhance the companys luxury image increase

brand awareness.

In 2012, Coach tried to increase global distribution and improved same- store sales productivity

by the following:

Increasing market share in existing markets

Coach opened approximately 15 new full- price retail stores and 25 factory outlets in North

America.

Raising brand awareness in underpenetrated market

Coach planned to open 30 new locations in Europe, South America and remarkable Asia.

Extending product line toward new target market

Coach started focus on mens productsin North America and Japan and dual- gender

product line in China.

Applying online channel

Coach raised brand awareness and built market share via coach.com and social networking

initiatives.

The company provided store employees with the customer service training programs and

scheduled additional personnel during peak shopping periods to ensure all customers satisfaction.

Coach might offer delivery service, if the particular handbag or color was not available during a

visit at store.


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Coach communicated with customers via a wide range of direct marketing activities which

included emails, websites, catalogs and brochures. In 2011, Coach revealed that the customer

contacts increased 52% to 625 million. Moreover, Coach distributed approximately a million

catalogs in its stores in Japan, Hong Kong, Macau, and mainland China.

b) Identify all the activities associated with making something (such as designing it,

purchasing raw materials, manufacturing, and so on).

Are there any innovation can you reveal?

Answer:

Coach launched new collections every month. Companys new products were based on

market research. Coach conducted extensive consumer surveys and held focus groups to ask

consumers about styling, comfort and functionality preferences. The prototypes which had beendeveloped by designers, merchandisers and sourcing specialists were rated by hundreds of existing

customers. After that, Coach did market test in selected Coach Stores for six months before

released the new products.

All of company leather products were manufactured by suppliers in Asia, China 85% and

Vietnam and India 15%. Coach controlled the quality throughout the process with product develop

offices in Hong Kong, China, South Korea, India and Vietnam. While Coach made the licensing

agreements to made footwear, eyewear, watches and fragrance.


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Question 3: Review the corporate strategic direction (vision, mission, objective, and

philosophy.) How coherent are they?

Answer:

Companys vision:

To become the company that defines global modern luxury.

Companys mission:

To build our brand worldwide and create stockholder value.

Company's objective:

To be a good employer and a responsible and socially sensitive corporate citizen in

the locations in which the corporation conducts business.

Companys value:

At Coach, we believe an inspirational and modern work environment is where exceptional

talent thrives.We nurture a culture infused with creativity, innovation, entrepreneurship, learning

and achievement to allow our people to always bring their best. We are inspired, talented, and

diverse individuals who work collaboratively to drive the continued success of our brand.

And, we know the Coach culture is truly a reflection of our Coach peopleboth who we

are and who we strive to be, simply defined by our Coach Values.

There is consistency among the above statements of vision, mission, objective and value.To be global modern luxury, we have to build our brand worldwide. To be worldwide, we need

skilled people. To draw talented people, we need to be a good and responsible employer and

provide the inspirational and modern work environment which allows skilled coach people to

present their best.


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Question 4: Functional Level Strategies

a) Describe all activities of the company by using Porters Value Chain. Compare the

companys value chain with other competitors value chain. Draw the picture to see the

differences and summarize your findings.

Answer:

Every companys business consists of a collection of activities that a company performs

internally combining to form a value chain. It allows the firm to understand the parts of its

operations that create value and those that do not. As shown in the figure 4.1, a companys value

chain comprises two categories of activities that drive costs and create customer value as follows:

- The primary activities add value to the final product directly for customers

- The support activities add value indirectly facilitating and enhancing the performance of the

primary activities

Figure 4.1 Porters Value Chain

Inbound

logistics(raw

materials

handling and

warehousing)

Operations(Broad-based

global

manufacturing)

Outbound

logistics(Multichannel

distribution)

Marketing

& Sales(Product,

Price, Place,

Promotion)

Services

(repair

parts)

Procurement

Technology

Human Resource Management

Firm infrastructure

ProfitMargin

Primaryactivities

Supportactivities


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Primary Activities

Inbound logistics

Coach has good procurement process that select only the highest-quality leathers and its

outsourcing agreements with quality offshore manufacturers which contribute reputation to thecompany for high quality and value. All of Coachs leather products are manufactured by the third

party suppliers in Asia, while Coach-branded footwear, eyewear, watches, and fragrances are made

available through licensing agreement Company outsources its production to 40 contract

manufacturers in 15 countries. However all product sources, including independent manufacturers

and licensing partners, must achieve and maintain Coachs high quality standards, which are an

integral part of Coach strategy, which focuses on matching key luxury rivals in quality and styling.

It manages suppliers raw material quality through product development offices in Hong Kong,

China, South Korea, India and Vietnam that work closely with our independent manufacturers. One

of Coachs keys to success lies in the rigorous selection of raw materials. Coach has longstanding

relationships with purveyors of fine leathers and hardware. Efficient outsourcing leads to reduce itsinventory holding costs. Lower inventories mean lower costs and, hence, greater value to company.

Operations

Because of Coachs outsourcing production, its contract manufacturers are located in many

countries, including China, Vietnam and India where are labor intensive countries and have low

labor costs comparatively. Vendors in China account for 85 percent of its production requirements.

Vietnam and India are produced the remaining 15 percent of product requirement. Coach also

expand its accessories product offering through licensing agreements with external company.Coach

also have management teams who control and ensure quality of products is reach throughout theprocess with product development offices in Hong Kong, China, South Korea, India and Vietnam.

Coach also evaluates each facility by conducting a quality and business practice standards audit

before signing licenses with a vendor. All manufacturing partners need to pass material compliance

with Coachs integrity standards. This broad-based, global manufacturing strategy is designed to

optimize the mix of cost, lead times and construction capabilities for Coach. This activity results

Coach maintains the finest quality products at the lowest cost and help limit the impact of

manufacturing. This broad-based, global manufacturing strategy is designed to optimize the mix of

cost, lead times and construction capabilities.


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Outbound logistics

Coach operates a large area of distribution and consumer service facility in Jacksonville,

Florida. This automated facility uses a bar code scanning warehouse management system. Coachs

distribution center applies radio frequency scanners for reading product bar codes, which allow

employees to more accurately process and pack orders, track shipments, manage inventory andgenerally provide excellent service to our customers. Coachs products are primarily shipped to

Coach retail stores and wholesale customers via express delivery providers and common carriers,

and direct to consumers via express delivery providers.

To support its growth in China, the region and Japan, Coach has an Asia distribution center

in Shanghai and in Japan owned and operated by a third-party, allowing its to better manage the

logistics in this region while reducing costs.

Part of outbound logistic strategy which is distributing product to buyers is another

distinctive element. Coachs strategy ismultichannel distribution model, which includes indirectwholesales to third-party retailers but focuses on primarily on direct-to-customer sales.

In 2012, Coach operated 345 full-price retail stores and 143 factory outlets in North

America, 169 store in Japan, and 66 stores in China, along with internet and catalog sales. Exhibit 5

shows it extends its stores every year.

Table 4.1 Coach Inc.s Retail Stores by Geographic Region

2007 2008 2009 2010 2011

North

American

retail stores

259 297 330 342 345

North

American

factory stores

93 102 111 121 143

Coach Japan

locations

137 149 155 161 169

Coach China

locations

16 24 28 41 66

Total stores 505 572 624 665 723Source:Exhibit 5 Coach Inc. in 2012 its strategy in the Accessible Luxury Goods Market

The direct-to-customer segment accounts for 87 percent of the companys 2011 net sales.

Coach s indirect wholesaler segment had 2011 net sales of $540 million, with the U.S. wholesale

segment serving about 970 department store locations and the Coach International group supplying

211 department store locations in 20 countries.


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The direct-to-customer channels include full-price stores in the U.S., factory stores in the

U.S. and other international markets. Coachs full price stores comprise 70 percent of its total U.S.

outlets. Full price stores are divided into three categoriescore locations, fashion locations, and

flagship stores. Flagship store are restricted to high-profile fashion districts in famous cities. This

tier carries the most sophisticated and highest-priced items. Core stores place in upscale shopping

center and downtown shopping areas and carries widely demanded lines. Fashion locations stock a

blend of company best-selling lines and chic specialty bags. Site selection of this type likes core

store location.

For factory stores in U.S., they are generally located 40 or more miles from its full-price

stores. Some products sold in shop are specially produced for factory stores. Some are overstocked

items and discontinued models.

Marketing and sales

Coach utilizes a flexible, cost-effective global sourcing model, in which independent manufacturerssupply our products, allowing us to bring our broad range of products to market rapidly and

efficiently.

Product - Coach offers distinctive, easily recognizable luxury products that extremely well

made and provided excellent value. It also approaches to differentiation to offer a unique brand

image to the marketplace so its marketing strategy relates to product quality and styling while

beating competitors on price. Company develop product base on market research. The research

helps Coach to understand its focus group about styling, comfort, and functionality preferences.

Once phototypes have been developed, Coach would test in selected Coach stores for six months

before a launch was announced. Coach also has a sophisticated consumer and market researchcapability, which helps it access consumer attitudes and trends and gauge the likelihood of a

products success in the marketplace prior toits official introduction. Coachs product offerings

include womens and mens bags, accessories, wearables, footwear, jewelry, sunwear, travel bags,

watches and fragrance.

Price- Coach has attractive pricing in customer perception. It set up price base on the

product image that they want to communicate with customers and create brand image. Coach uses

the power of its distribution channels to play the main rules in this strategy. According to the

channel, Coach has used the concept of Accessible LuxuryProduct to approach to their target

customers. They focus on 2 pricing strategies depending on store type in direct-to-customerchannels which are factory stores and full price stores. For full price stores which include flagship

store where present the most sophisticated product line so they are the highest-priced items, core

stores where carries widely demanded lines and fashion locations stock a blend of company best-

selling lines and chic specialty bags. The typical full-price store shopper is a 35-year-old, college-

educated, single or newly married working woman while Coachs factory stores target value-


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oriented customers who may not otherwise buy a Coach product. The typical factory store shopper

is a 45-year-old, college-educated, married, professional woman with children. Product which

coach offer in factory stores are specially products for factory stores, overstocked items and

discontinued model. It result Coach can set up product price 10 to 50 percent discounts. Factory

stores are also located 40 or more miles from the full price stores. The factory store strategy

capitalizes on the brands lead luxury image projected at their flagship and retail stores.

Place- For retail distribution, stores are located in regional shopping centers and

metropolitan areas. They carry product lines depend on their sizes and locations. Flagship stores,

which offer the high-profile products, are located in high-visibility locations such as New York,

Chicago and San Francisco.

Our stores are sophisticated, modern, bright and airy ambiance. They enhance the shopping

experience while reinforcing the image of the Coach brand. They are consistent with its strategy of

raising awareness and aggressively growing market share. The modern store design creates a

distinctive environment to display our products. Store associates are trained to maintain highstandards of customer service experiences an additional differentiating aspect of the brand. The

company provide store employees with regular customer service training programs and scheduled

additional personnel during the peak shopping periods to ensure all customers are attend to

satisfactorily.

For Coach Japan and China, they operate department store shop-in-shop locations, retail

stores and factory outlets. Coach China distribution includes districts in Hong Kong.

U.S. Wholesale offers access to Coach products to consumers who prefer shopping at

department stores. Its most significant U.S. wholesale customers are Macys (includingBloomingdales), Dillards, Nordstrom, Lord & Taylor, Carsons, the Bay and Saks Fifth Avenue.

However overall U.S. department store sales have slowed over the last few years.

Coach International channel represents sales to international wholesale distributors and

authorized retailers involved department stores, freestanding retail locations, shop-in-shop

locations and specialty retails in 18 countries. Coachs most significant international wholesale

customers are the DFS Group, Lotte Group, Shilla Group, TasaMeng Corporation and Imaginex.

Travel retail represents the largest portion of our customers sales in this channel which are

Chinese and Japanese.

On the Internet, Coach views its website as a key communications vehicle for the brand to

promote traffic in Coach retail stores and department store locations and build brand awareness.

With approximately 76 million unique visits to the coach.com e-commerce website in fiscal 2012,

our online store provides a showcase environment where consumers can browse through a selected

offering of the latest styles and colors. Our ecommerce programs also include third-party flash sites

and our invitation-only factory flash site.


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Promotion- Because Coach has a sophisticated consumer and market research capability,

Coach uses its extensive customer database and consumer knowledge to target specific products

and communications to specific consumers to efficiently stimulate sales across all distribution

channels.

Coach engages in several consumer communication initiatives, including direct marketingactivities and national, regional and local advertising primarily driven by increased email

communications. Coachs wide range of direct marketing activities includes email contacts

brochures and website targeted to promote sales to consumers in their preferred shopping venue. In

addition to building brand awareness, the coach.com and reedkrakoff.com websites serve as

effective brand communications vehicles by providing a showcase environment where consumers

can browse through a strategic offering of the latest styles and colors, which drives store traffic and

enables the collection of customer data.

In addition, the Company utilizes and continues to explore new technologies such as global

e-commerce site, blogs and social networking websites, including Twitter and Facebook, as a costeffective consumer communication opportunity to increase on-line and store sales, acquire new

customers and build brand awareness. The Company also runs national, regional and local

advertising campaigns in support of its major selling seasons. For market outside America such as

Japan, Hong Kong, Macau and China Mainland, catalogs that are distributed in Coach stores are

also one of the popular communication.

On the Internet, Coach views its website as a key communications vehicle for the brand to

promote traffic in Coach retail stores and department store locations and build brand awareness.

Many users visit to the coach.com e-commerce website. Coach online store provides a showcase

environment where consumers can browse through a selected offering of the latest styles andcolors. its e-commerce programs also include third-party flash sites and our invitation-only factory

flash site.

Target specific products and communications which Coach drives brand image to specific

consumers are efficiently stimulate sales across all distribution channels.

Service

Coach sought to make customer service experiences and additional differentiating aspect of

the brand. Coach provides maintenance services: refurbish or replace damaged handbags,

regardless of the age of the bag. Through the companys Special request service, the company

provide home delivery service if the particular product is not available during customers visit.

Store associates are trained to maintain high standards of customer service experiences an

additional differentiating aspect of the brand. The company provide store employees with regular

customer service training programs and scheduled additional personnel during the peak shopping

periods to ensure all customers are attend to satisfactorily.


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Support Activities

Firm Infrastructure

Coachs information systems is its Enterprise Resource Planning (ERP) system. This

fully integrated system supports all aspects of finance and accounting, procurement, inventorycontrol, sales and store replenishment. The system functions as a central repository for all of

Coachs transactional information, resulting in increased efficiencies, improved inventory control

and a better understanding of consumer demand.

Complementing its ERP system are several other system solutions, the data warehouse

system summarizes the transaction information and provides a single platform for all management

reporting. The supply chain management system supports sales and inventory planning and

reporting functions. Product fulfillment is facilitated by Coachs highly automated warehouse

management system and electronic data interchange system, while the unique requirements of

Coachs internet business are supported by Coachs order management system. Finally, the point-of-sale system supports all in-store transactions, distributes management reporting to each store,

and collects sales and payroll information on a daily basis. This daily collection of store sales and

inventory information results in early identification of business trends and provides a detailed

baseline for store inventory replenishment. Updates and upgrades of these systems are made on a

periodic basis in order to ensure that we constantly improve our functionality. All complementary

systems are integrated with the central ERP system.

Therefore, the supportive system, ERP, has supported each functional level of the

organization to achieve the superior efficiency and compete in the market successfully.

Human Resource management

Coach employed approximately 18,000 people, including both full and part time employees

cover the retail field in North America; Japan; Hong Kong, Macau, and mainland China; Taiwan;

Singapore and Korea. Approximately 70 of Coachs employees are covered by collective

bargaining agreements. Coach believes that its relations with its employees are good, and it has

never encountered a strike or work stoppage.

Coach employees are diverse, talented and aspiring workforce. Coach is committed to

attracting the best talent and engaging them by providing opportunities to succeed personally and

professionally in a supportive, positive, and diverse working environment.

It has always been its belief that the Coach brand is driven by the power of our people

strong, talented and dedicated employeeswho share Coachs vision, believe in brand, strive for

excellence, and bring a sense of pride and ownership to their work.


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Coach have view that is the character of Coach employees. They like the ambassadors of

brand who drive Coach success, through the strong bonds they build with each other and in the

lasting relationships they establish with Coach customers.

Coach set high standards and recruit employees based on their ability to meet and exceed

expectations. Staffs that it seeks out individuals who are not only technically skilled andknowledgeable but who enjoy challenges, who seek to develop themselves and who have excellent

interpersonal skills.

Coach expect a lot from our employees and know that our employees expect a lot from

Coach as an organization as well. It works to ensure a healthy work-life balance for company

employees and strive to make coming to work every day a positive experience. The following

sections will outline how Coach engages with our employees to promote a supportive and

accepting work environment.

Table4.2Employeesbenefits

Source:COACH SustainabilityReport,2013,p. 20


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Table4.3Global workforce ofCoach

Source:COACH SustainabilityReport,2013,p. 15

Technology development

Technology development comes up with market researchs result. Coach conducts

extensive consumer surveys and holds focus groups to ask customers about styling, comfort, and

functionality preferences. The design process allow Coach to launch new collections every month.

Hence, company need to deal with product and process innovation and improvement.

To develop new style product, Coach also emphasizes on its website. Internet sales

(Coach.com), online store provides a showcase environment where consumers can browse through

a selected offering of the latest styles and colors. Because of a Consumer-Centric Focus, Coach

listens to its consumer through rigorous consumer research and strong consumer orientation. Coach

works to anticipate the consumer's changing needs by keeping the product assortment fresh and

relevant.

Coach believes that these differentiating elements have enabled the company to offer a

unique proposition to the marketplace and expand the market share with better quality.

Therefore, the innovation and a consumer-centric focus strategy of Coach can contribute the

superior efficiency, quality, innovation, and customer responsiveness that enables Coach to lowers

its costs, charge higher price, and earns strong brand loyalty.


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Procurement

According to manufacturing part, all of Coachs production was outsourced to contract

manufacturers, with vendors in many countries. To maintain the high quality standard, thecompanys procurement process needs to select only the highest quality leathers and also provide

the sourcing agreement with quality offshore manufacturers, contributed to the companys

reputation for high quality and value.

Coachs design and merchandising teams work in close collaboration with all licensing

partners to ensure that the licensed products are conceptualized and designed associated with the

Coach brand and to achieve profitable sales.

Coach utilizes a flexible, cost-effective global sourcing model, in which independent

manufacturers supply its products, allowing Coach to bring its broad range of products to market

rapidly and efficiently. One of Coachs keys to success lies in the selection of raw materials. Coach

has longstanding relationships with purveyors of fine leathers and hardware.

In addition, Coach has implemented ERP system in order to support all aspects of finance

and accounting, procurement, inventory control, sales and store replenishment. This daily

collection of store sales and inventory information results in early identification of business trends

and provides a detailed baseline for store inventory replenishment including fasten the procurement

process to reduce shortage or excessive inventory


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Compare the companys value chain with other competitors value chain

Activities inValue Chain

Coach Inc. Direct Competitors(Kate Spade, Michael Kors)

Primary Activities

Inbound Logistics

- Broad-based globalmanufacturing and Licensingagreement

- Rigorous selection of

raw materials- Quality control throughagreement and productdevelopment office

- Long relationship with suppliersbecause Coach due with them

- Licensing agreement

- Not too long relationship withsuppliers compared to Coach

- Control quality through agreement

to ensure the quality and on-timedelivery of raw materials.

Operations - Broad-based globalmanufacturing

- operational diversification;outsourcing and licensing

- On site quality inspection

- Broad-basedglobalmanufacturing

- On site quality inspection

OutboundLogistics

- Multichannel distribution- Direct distribution (Retailstores,

Flagship stores, Factory store,

Coach Japan, Coach China, Internet and Catalog sales)

- Indirect distribution

(wholesales, department store)

-

Multi-channel internationaldistribution modelbut the numbersof distribution channels is less thanCoach

- Direct distribution (Retail stores,

Flagship stores,Internet andcatalog sales)

- Indirect distribution (wholesales, department store)- Kate Spade depends on only one

sourcing agent by using Li & Fung

company as the outsourcing logisticcompany to distribute products totheir retails and wholesales.


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Activities in

Value ChainCoach Inc. Direct Competitors

(Kate Spade, Michael Kors)

Sales and

Marketing

Product- Differentiation strategy,

Coachs product quality andstyling look modern andbeautiful

- Launching new collectionfrequently based on customerresearch

- High quality product atcomparative price.

Product- Differentiation strategy, productquality and styling (Kate products aremodern characteristic and brightcolors, Michael product are beautifuland stylish brand design)- Slow launching new product- Moderate and standard

quality

Price- Price discrimination

- Positioning the brand asAccessible Luxury ProductsThe price is moderate.Focusing on the affluentcustomers who seek for highquality, good look at a lowerprice. With a group of middle-

class people who want theLuxury

Price- The price level and strategy close to

Coachs as being accessibleluxury products

- Products have moderate price. Katefocuses on fun, colorful andmodern, rather than an expensiveluxury. Michael is a luxury productthat looks good and general peoplecan purchase.

Place- Great variety of distribution

channels including full priceretail store, factory outlet,internet, sales representative ordepartment stores.

Place- Kate has powerful distribution

channels both retailers and online.Using E-commerce sale ofdistribution channels whichsuccessfully increased its customerbase and driven business.

- Michael has moderate distributionchannels in regular stores as well asin leading department stores andonline. But the number of branchesmay not be as much as other brandsand locations may be limited in

major cities or fashion city


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Activities in



Promotion- Pull strategy creating reputation,

brand awareness- Push strategy, catalog, shop,

launch new collection, attractcustomer to visit the shop andbuy product

- Create customer experience- After sale service

Promotion- Pull strategy

Michael Kors, he is not onlyfounder but also brand ambassador.He is the American Fashion Iconand celebrities. This brand is activecommunication to their customers,through advertising while using lotsof celebrities endorsement strategy.Also, using direct marketing toarouse the brand awareness. Thewebsite of michaelkors.com is alsoanother marketing channel online,

also quickly response to thecustomers online order.- Kate Spade uses its unique idea

using innovative marketing bytaking advantage from socialnetwork such as Facebook,Youtube or Instagram and E-commerce sales. Kate Spade is nowbecome Queen of Digital

Services - Create Customer experience instore (give well-trainedemployees to serve customers at

store, increasing the number ofemployees during peak shoppingperiods

- After sale service (refurbish orreplace damaged handbags,regardless of the age of the bag,special request service forcustomers to order goods forhome delivery)

- Create Customer experience instore (give well-trained employeesto serve customers at store)

-

After sale service (warranty andrepair service offering)


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Activities in



Support Activities

Firm Infrastructure- ERP (Enterprise Resource

Planning) implication, fullyintegrated system of the firm toimprove inventory and operationprocess

- Innovative IT system with SAP,ERP

Human ResourcesManagement

- Employee diversification- Employee engagement

(training program, rewards andcompensation)

-

Employees have knowledge,skills, expertise and know-howcomparatively comparing toother luxury brands.

- Monitoring Global WorkingConditions to ensure the benefitsof employees

- Providing development

opportunities at all levels- Reward and compensation- Employees may have less

knowledge, skills, expertise andknow-how comparing to otherluxury brands Since the companyis very young comparing to longoutstanding competitors.

TechnologyDevelopment

- Product development- Differentiation strategy, product

quality and styling based onConsumer research in eachquarter to design new collectionand launch Monthly product tomake purchases on a regularbasis

- Consumer-centric focused strategy- Design and develop new

technology for new collection

Procurement - The highest quality materialselection

- Outsourcing agreement andlicensing partners

- Longstanding relationships with

suppliers- Enterprise Resource Planning(ERP) implication

- Depends on only one sourcingagent Kate Spade using Li & Fungcompany as the outsourcing logisticcompany to reduce their cost insupplying products to their retails

and wholesales.- Advance purchase commitmentwith main materials throughapproved vendors


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b) Identify functional Level Strategies that the company is employing. How can those

Functional Level Strategies improve the effectiveness of a companys operations and thus its

ability to attain superior Efficiency (E), Quality (QR:QE), Innovation (PDI:PCI), and

Customer Responsiveness (CR)?

Answer:

b1) Inbound Logistics Strategy

Inbound logistics relates to material section that faces with minimizing raw materials, and

inventory. They also have high quality same as Coachs standard.

Coach outsources production to its manufacturers so it has utilized a flexible, cost-

effective model, in which independent manufacturers supply their products, allowing Coach to

bring the broad range of products to market rapidly and efficiently.

Coachs material management strategy is the minimization of the inventory holding in

order to lower their cost structure. This implies that Coach tends to lower their inventory from

materials to finished products.

Therefore, the implementation of Coachs Inbound Logistics Strategycan contribute the

superi or eff iciency and quali ty that enable the company to lower its costs and charge a higher

price.

b2) Operations Strategy

Operation strategy determines how and where a product is to be manufactured and

source of produced physical products, and quality.

Although Coach Products are manufactured by independent manufacturers; the company

maintains control of the raw materials that are used in all of their products. Compliance with

quality control standards is monitored through representative office. Coach evaluates each facility

by conducting a quality and business practice standards audit. This activity supports Coach to

customize production that response to the customer preferences. This implies that Coach hasimplemented the flexible manufacturing by improving quality control at all stages of

manufacturing process.

The implementation of can contribute the superi or eff iciency that enables the company to

lower its costs.


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b3) Outbound Logistics Strategy

Outbound logistics relate directly to logistics function that deals with the flow of

products into and out of the manufacturing process.

Coach has implemented A Multi-Channel International Distribution Model this

allows Coach to maintain a critical balance as results do not depend solely on the performance of a

single channel or geographic area. Their distribution channels are Direct-to-Consumer and

Indirect-to- Consumer channels. The direct channel, it provides services and control to

consumers through retail stores, flagship stores, factory stores, and internet while the indirect

channel is wholesale stores, department store or international shops. These multi-channels of

Coach are offered to customers to access to Coachs products easily that enables the

company to expand the market and communicate to customers including response rapidly to their

needs.

The strong multi-channel distribution model of Coach can contribute the superior

eff iciency, qual i ty, innovation and customer responsiveness that enables Coach to lowers its

costs, charge a higher price and earns strong brand loyalty finally.

b4) Marketing and Sales Strategy (Product, Price, Place, Promotion)

Marketing and sales strategy relates to marketing function that deals with pricing, selling,

and distributing a product. Coach has implemented strategies in terms of delivering a consistent

message to consumers who come in contact with the Coach brand through their communications

and visual merchandising

Product: New product design is developed based on market research that differ from

the products from their competitors which develop based on their designers.

Price: Coach offers both full-priced and discounted products for the different stores in

order to approach to the multi-level customers.Place: Coach uses a multi-channel international model to distribute their products

to customers with different price level and target group. So customers can access to Coach easily

and the company can expand their market around the world.


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Promotion: As Coach has world-wide channels, the company has implemented regional

and local advertising, direct marketing activities and national, e-commerce, public relations, and

customer service in order to communicate to customers. The company can use its extensive

customer database and consumer knowledge to target specific products and communications

to specific consumers to efficiently stimulate sales across all distribution channels and build brand

awareness and brand loyalty.

The strong marketing strategy of Coach can contribute the superior efficiency,

quality, innovation, and customer responsiveness that enables Coach to lowers its costs,

charge higher price, and earns strong brand loyalty.

b5) Services Strategy

Service strategy relates to marketing that deal with post purchasing service and providing

channel for customers to receive the support from the company.

Coach offered many services to guarantee the most benefit for customers for example

special request service to deliver goods to home, damage claim throughout products lifetime and

refurbish or replace damaged handbags offering.

The effective service offering of Coach can contribute the superior customer

responsiveness that enables Coach to earns strong brand loyalty.


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b6) Firm Infrastructure (Information Technology, Accounting, Finance, Strategic Planning)

Coach applies ERP system which is the fully integrated system supporting all

aspects of finance and accounting, procurement, inventory control, sales and store replenishment. In

addition, the point-of-sale system in ERP supports all in-store transactions, distributes management

reporting to each store, and collects sales and payroll information on a daily basis. This daily

collection of store sales and inventory information results in early identification of business trends

and provides a detailed baseline for store inventory replenishment (10-K Report of Coach Inc.,

2011, p.8).

ERP system can automate many of the company activities which reduce the costs of

supply chain coordination for company and suppliers. In terms of company and customers, the

point-of-sale system can replace the capital-intensive physical location with a much less costly

web site. Moreover, the system also supports the information of defect rate monitoring,

coordinating cross-functional and cross-company product development work, and the web-based

information also increases the speed of response to customer demands.

The ERP implementation of Coach can contribute the superior efficiency, quality,

innovation, and customer r esponsiveness that enables Coach to lowers its costs, charge higher

price, and earns strong brand loyalty.

b7) Human Resource Management Strategy (Recruiting, Selecting, Training, Developing,

Evaluating, Compensation and Retaining)

Coach has intensive human resource management in order to employ the employees who

are good attitudes, service lovers, and being ready to be trained all time. Coach believed that the

people of Coach is the ambassadors of the brand, who create the success, through their behavior

they build with each other and in the lasting relationships they establish with Coach customers

(COACH Sustainability Report, 2013).

HR system of Coach which consists of recruiting, training, and compensation programs also

allows their employees to learn and manage their team by themselves. There are many learning

programs that all employees can attend in order to increase their productivity. In addition,

employeesbenefits are offered according to their roles and regions including the companys stock

in order to enhance the morale and productivity of their employees.


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The human resource strategy of Coach can contribute thesuperi or eff iciency, quali ty,

innovation, and customer responsiveness that enables Coach to lowers its costs, charge higher

price, and earns strong brand loyalty.

b8) Technology Development Strategy

Technology and development strategy relates directly to product innovation. Coachs

development process based on consumer research by cooperating with marketing department in

order to design the products matching with customersneeds and behaviors. In addition, the design

process allowed Coach to launch new collections frequently. So Coach Consumers have a

specific emotional connection with the brand and Coach believes its customers have loyalty toward

brand.

Coach is strong consumer orientation brand. it listens to its consumer through consumer

research. The consumer's changing needs when time passes, thus Coach works to anticipate by

keeping the product assortment fresh and relevant. Coach believes that these differentiating elements

have enabled the company to offer a unique proposition to the marketplace and expand the market

share with better quality.

The development and differentiation strategy of Coach can contribute the superior

efficiency, quality, innovation, and customer responsiveness that enables Coach to lowers its

costs, charge higher price, and earns strong brand loyalty.


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b9) Procurement Strategy

Procurement strategy relates to purchasing function that deals with obtaining raw materials,

parts, and supplies needed to perform operations function.

According to manufacturing part, all of Coachs production are outsourced to contractmanufacturers, with vendors in many countries. To maintain the high quality standard and cost

effectiveness, the companys procurement process needs to select only the highest quality leathers

and also provide the agreement with quality manufacturers, contributed to the companys reputation

for high quality and value. This strategy supports inbound and operation functions in terms of

reducing defect occurrence during production.

In addition, ERP system can support procurement by reducing shortage or

excessive inventory (10-K Report of Coach Inc., 2011, p.8).

Therefore, the Procurement Strategy of Coach can contributethe superior eff iciency andquality that enables Coach to lowers its costs and charge higher price.


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d) Draw a table to summarize all Functional Level Strategies that the company depends on. Which effectiveness that the

company puts most emphasis on.

Functional

Level

Strategies Efficiency Quality Innovation Customer

ResponsivenessReliability Excellent Product Process

Inbound

Logistics


E1 QR1

- Rigorous selection of rawmaterials

E2 QR2

Operations - Broad-based globalmanufacturing E3

- operational diversification;outsourcing and licensing

E4

Outbound

Logistics

- Multichannel distribution E5 QE1 PDI1 PSI1 CR1

Marketing

and Sales

Product- Differentiation strategy,product quality and styling

E6

- Launching new collectionfrequently based on customerresearch

PDI2 CR2

- High quality product atcomparative price

QE2 CR3

Price- Price discrimination E7 CR4

Place- store classification E8 PSI2- various locations E9- Direct to customer store E10- indirect to customer store E11- International channel E12- Internet E13


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Functional

Level

Strategies Efficiency Quality Innovation CustomerResponsivenessReliability Excellent Product Process

Promotion- Pull strategy, reputation, brandawareness

CR5

- Push strategy, catalog, shop,launch new collection, attractcustomer to visit the shop and buy

product

CR6

Service - create customer experience CR7- After sale service QR3 QE3 CR8

Firminfrastructur

e

- Enterprise Resource Planning(ERP) implication

E14 QR4 QE4 PSI3 CR9

Human

Resource

- Employee diversification E15 QE5 CR10

- Employee engagement E16 QE6 CR11

Technology

Development

- Product development E17 QR5 QE7 PDI3 CR12

- Differentiation strategy, productquality and styling

E18

Procurement - The highest quality materialselection

E19 QR6


E20

- Longstanding relationships withsuppliers

E21 QR7

- Enterprise Resource Planning(ERP) implication

E22 QR8 QE8 PSI4 CR13

Total 22 8 8 3 4 13


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Question 5: Business Level Strategies

a) Describe business level strategies that allow a company to attract customers away from

its competitors in the industry from past until present.

Answer:

Period 1: 1941-1984 The company beginning - Focused Differentiation Strategy.

What need to be satisfied?

Customers need a luxury handbag at an acceptable price

Luxury product with a classic style.

Who will be served?

Stylish women who like to own a luxury handbag in a reasonable price in US.

How would the company satisfy them?

Design 12 unlined leather bags, which soon developed a loyal following. Pricing the product at 50% cheaper than its rival.

Reach them by establish an account at Blooming dales and Saks Fifth Avenue.

Open the company-owned store.

Period 2: 1985-1995 Sara Lees period Focused differentiation

What need to be satisfied?

Customers need a luxury handbag at an acceptable price.

Strong preference for European style brand and accessories.

Who will be served? Stylish women who like to own a luxury handbag in a reasonable price in US.


Company continued to build strong reputation for long lasting classic handbags.

Being known by the customers who want a luxury bags at reasonable price.

Pricing at 50% cheaper.

Period 3: 1996-2000 Lew Frankfort and Reed KrakoffBroad differentiation

What need to be satisfy?

Customers need a luxury handbag at an acceptable price. Edgier styling, softer leathers, leather-trimmed fabric handbags.

European style accessories.

Who will be served?

Stylish women who like to own a luxury handbag with famous brand in a

reasonable price in US and starting to go for global market.


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Outsource production to 40 suppliers in 15 countries.

Start to design product based on consumer survey and test the prototype for 6

months before launching.

Distribute product through multichannel.

Redesign its store to enhance the brand image.

Pricing at $200-500 compared to entry price of rivals handbags entry price at

$700-800

Start penetrating to Japan market by its company store.

Period 4: 2000-2011 expanding to global market - Broad differentiation

What need to be satisfy?

Customers need a luxury handbag at an acceptable price.

Brand also needs to have strong identity.

Functions of the bags become more significant.

Variety of product is needed.

Who will be served?

Women who like to own a luxury handbag in a reasonable price.

Men also targeted.

Target middle to upper income class

Global market entrance, China, India, Japan and north American

Penetrate to China market due to its relieved in restriction by Chinese government


Use effective advertising and television programming to create conspicuous

consumption.

Design product based on consumer survey and tests the prototype for 6 months

before launching.

Distribute product through multichannel.

Better segmented the market through its multichannel distribution.

In 2000 coach start to enter the stock market through IPO.

Established company store in China and India.


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In summary

The business level strategy that Coach Inc. presently use is a broad differentiation, in

which they positioning themselves as an accessible luxury brand name, it different from other in

the sense that the typical luxury brand positioning them towards the high end and try to targeted

the top 5% of household income in US and design the product to match the positioning theyflagged while the positioning that coach try to developed are an accessible tier which they

targeted top 20% of household income using the key style of rivals design corporate with

market survey and use a highest quality material possible but 50% cheaper than its rival, while

its rival cant lower the price otherwise they will lose their superior image. To do the pricing at

50% less than others, Coach outsource its production to 40 suppliers in 15 countries make Coach

have an efficient cost structure than the other luxury firm. There are plenty of brand try to entry

this market but Coachs perceived value from customer are far higher than any other brand in its

positioning area and moreover theres a research that women in the US ranked Coach ahead of

much more expensive luxury brands like Hermes, Ralph Lauren, Prada and Fendi. From these

reason, it can be claim that the business level strategy of coach are allow a company to attract

customer away from its competitors.

b) How well do the strategic managers adopt for using functional level strategy to create

competitive advantage over its rivals.

Answer:

An appropriate functional strategy should support the business level strategy,which coach

try to differentiate its product and use the price to beat (broad differentiate), Coach use

functional of E = 22 QR = 8 QE = 8 PDI = 3 PSI = 4 CR = 13.

Strategic manager was doing well in term of using functional level strategy to create

competitive advantage over its rivals, he use e of 22 which makes the firm attain low cost to

maintain a sizable pricing advantage and also use QR of 8 , QE of 8 , PSI of 4 , PDI of 3 and CR

of 13 to differentiate, Which resonance with the business strategy of broad differentiation.

Reed Krakoff the former top designer from Tommy Hilfiger was hired and he implement

functional strategy as follows:


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Cost control function. (Efficiency -Involve in its operation strategy area)

- Outsourcing production to 40 suppliers in 15 countries, which allow coach to maintain a

sizable pricing advantage relative to other luxury handbag brands in its full price store as

well. For example: handbag sold in coach full price store range from $200-$500, while its

competitors entry price are $700-$800.This broad based global manufacturing strategywas designed to optimized the mix cost, lead time and construction capabilities.

- Monthly product launched in limited number to reduce risk with owning inventory

Differentiate function. (Involve in its marketing strategy, service strategy and Research and

development strategy, procurement strategy area)

- Redesign its flagship stores to complement Coachs contemporary new design and make

it enhance the coach brand, which also raising awareness and aggressively growing

market share.

- Improve the appearance of factory store, which carried segmented product, the test

model, discontinued model and special lines.

- R&D based on what customers want, previous customer were asked to rated prototype

design against existing hand bags and tested in selected coach store for 6 month before

launch.

- Monthly product launches enhanced companys voguish image and gave consumer

reason to make purchases on a regular basis and also to capture customer who want thenewest items and fashions

- Improving the classic product line such as a iconic handbags to be lighter and call it

update version from 1970s, 1980s make this collection become its best selling in 2012.

- Maintain the service after sale policy, coach sought to make customer service experiences

an additional differentiating aspect of the brand. It had agreed to refurbish or replace its

handbags, regardless of the age of the bag.

-The company provided store employees with regular customer service-training programs

and scheduled additional personnel during the peak time to ensure the entire customer

were attended to satisfactorily.

- Coach also provides home delivery when the product requested was not available during

the store visit.


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- Coach also saw communication with its customers as an opportunity for further

differentiation. It communicated with customers through direct channel such as email,

customer contact and catalog, which reach millions of people around the world.

c) Draw the Value-Creation Frontier to explore the position of company business strategyand summarize your findings.

Answer:


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The position in Value creation frontier of Coach is the broad differentiator, which coach

use functional of E = 22 QR = 8 QE = 8 PDI = 3 PSI = 4 CR = 13.

The estimate position are located as illustrate in the figure, Additionally according to thecase, coach is the leading in its market, hence the position in value creation frontier is on the

frontier.

d) How well do the business and functional level strategy help the company to accomplish

its strategic direction?

Answer:

We first consider at its vision and mission, which their vision & mission can be found on

their official website:

Vision: To become the company that defines global modern luxury.

Mission: To build our brand worldwide while creating stockholder value.

Objective: To be a good employer and a responsible and socially sensitive corporate

citizen in the locations in which the corporation conducts business.

We found that the strategic direction Coach want to be is a worlds leading accessible

luxury brand, the business strategy coach implementing is broad differentiation, which allow the

company to lead and influence the market as stated on the mission, its functional level strategy

support its business level strategy to achieve the differentiate and efficient in cost, for exampletry to use the best quality of material possible, design the product based on what customer want

(consumer centric), redesign its new store to enhance the modern contemporary awareness, use

outsourcing in broad-based, etc.


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Question 6: Business Level Strategies

a) What kind of Corporate level strategy that the company have been pursuing from the

past until present? Can you notice the evolution of Corporate level strategy?

Answer:

Period 1941-1984: Intensive Growth Market Penetration Strategy

Coach was founded in 1941 in United State as a family-business run by Miles Cahn.

Cahn began producing lady handbag crafted by hand in simple style. Over 40 years Coach tried

to grow and increase market share in United State by setting the price 50% lower than luxury

brands.

Period 1985-1995: Stability No change

Sara Lee acquired Coach in 1985. Under Sara Lees management, Coach did notintroduce new product. They continued to build classic handbag. However, by the mid-1990s,

consumer changed handbag preference to stylish French and Italian designer brands, then Coachsales started to decline.

Period 1996-2000: Intensive Growth Product Development Strategy

In 1996, Lew Frankfort, Chairman and CEO of Coach at that time hired Reed Krakoff asCoachs new creative director. Under Krakoffs management, Coach conducted survey to findcustomer need and develop new design of handbag with edging styling, softer leathers, andleather-trimmed fabric handbags. In addition, Coach launched new collections every monthinstead of only two collections per year. Price of Coach handbags sold in full-price stores waslower than luxury brands which made Coach gained competitive advantage. However, in 2000

Sara Lee spanned off Coach through IPO.

Period 2001: Intensive Growth Market Development Strategy

Coach Japan was formed to expand their presence in Japanese market. Coach Japan was

initially formed as a joint venture with Sumitomo Corporation. Under joint venture agreement

Coach supplies its merchandise to Coach Japan for distribution and sale in Japan. At that time,

Coach could expand its products through 63 retail and department store locations in Japan.


Coach continued to drive market share by focusing on the United State and Japan. They

grew their distribution through store opening, expansion and relocation. They enter new marketsas well as strengthen the existing ones. In Japan, Coach accelerated flagship stores which

allowed them to increase its brand awareness in Japan. In addition to gaining greater market

share, Coach intensified brand awareness by offering aspirational, stylish and well-made product

with accessible price. Coach emphasized new usage occasion and offered product at a broader

range of price. They evolved marketing programs in order to increase customer experience.


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Period 2005-2006: Intensive Growth Market Development Strategy

Apart from expanding stores in two core markets which were United State and Japan, in2005-2006 Coach focused on driving growth in Hong Kong as the gateway to greater China.

Coach had 10 stores in Canton Road, Hong Kong in 2006.


In 2007, Coach continued to develop opportunity by adding new stores in new locationsboth in United State and Japan. In addition, Coach had strengthen on-the-ground presence inGreater China by opening eight new stores in key cities on Chinese Mainland as they focused onrapidly growing distribution and raising brand awareness in this emerging market for luxurygoods.

In 2008, Coach keep increasing stores in North America and Japan. New Store opening

in North America and Japan was strength and made Coach gained more market share. Foremerging market like Greater China, Coach acquired their domestic business in Hong Kong,

Macau and Mainland from its former distributors which enabled them to raise brand awareness

and aggressively grew market share with Chinese customers. Moreover, they entered into new

market i.e. Turkey, Greece and Russia with international distribution partners.

In 2009, Coach expanded stores location in North America, Japan and especially in

Greater China through merchandising initiatives including Coach collection to drive brand

creativity and reinforce their brand to be known as great American design house

In 2010, Coach still increased Coach-operate stores in their existing markets. For Direct

to consumer segment, they maintained high standard of merchandising and customer services forretail stores. For indirect segment: US wholesales, Coach continue to drive sales volume by

giving promotion at point-of-sale. For Coach International, they continue to drive growth by

expanding distributions to reach local customers in emerging markets as well as increase brand

image.

In addition, by mid of Year 2010, Coach had formed joint venture agreement to expand

Coach International business in Europe.

Period 2011: Intensive Growth Market Development Strategy/ Market Penetration

Strategy

Coach acquired non-controlling interest in a joint venture with Hackett Limited to expandthe Coach International business in Europe. Through joint venture, Coach opened retail stores inSpain, Portugal and Great Britain and anticipated to expand more in 2012. In addition, Coachtried to raise brand awareness in under-penetrated existing markets. They also refocused onMens opportunity. Coach implemented a number of initiatives to promote Mens productoffering through image-enhancing and accessible locations.


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b) Draw the web of Corporate level strategy to concluding the finding

Answer:

Coachs Web of corporate Level Strategy

c) How did each Corporate level strategy help company increase revenues and profits from

the past until present? Will each Corporate level strategy maximize long-run profitability

of the company? Draw the straight line graph including Revenue, Profit, Return on sales

and ROIC on the same picture to support your finding.

Answer:

Core Industry:

"AccessibleLuxury Goods"

Intensive Growth

Strategy:

"Product DelopmentStrategy" i.e.redesigninghandbags

Intensive GrowthStrategy:

"Market PenetrationStrategy" i.e. increasing

stores in NorthAmerica, Japan etc.

Intensive GrowthStrategy: "MarketDevelopmentStrategy" i.e.

expanding to China,Europe etc.


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Coach generated revenue by selling its product directly to consumers, indirectly to

wholesale customers and through licensing its brand name to selected manufacturers. During

2007-2011, sales continually rose driven by Coachs Market Penetration strategy/ Market

Development Strategy to grow market share by increasing stores in North America, Japan and so

on, Coach sales, in 2008 (Market Penetration Strategy) was still strong, sales rose 22%, Direct to

consumer sales both in North America and Japan rose 21% generated by new and expanded

stores as well as comparable store sales. In 2008, Coach gained excellent market share (13%)

upon number two position in Japan and grew more market share in China, these resulted inincrease in sales and net profit (16% increase) compare to prior year. In addition, year 2008 was

another record year of unit distribution growth for Coach. Coach added more stores in North

America and Japan and China.


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In 2009 (Market Penetration Strategy), though sales increased from new and expanded

stores, net profit and return on sales dropped as gross profit decline. Decline in gross profit was

driven by promotional activities in Coach-operated North American factory stores and channel

mix which gross profit was impacted by Coach sharper pricing initiatives, in which retail prices

on handbags and womens accessory had been reduced in response to customers reluctant to

spend. Apart from those mentioned reasons, there was change in sales mix, foreign currency

exchange rate and fluctuation in material costs that affected gross profit. Meanwhile, Coach had

increase in SG&A expense affected by the number of Coach-operated stores increased. These led

to lower net profit and return on sales in 2009.

In 2010 (Market Penetration Strategy), Coachs sales still went up from expanding more

stores in existing markets. Net profit, Return on sales and ROIC also increased compared to prior

year.

In 2011 (Market Development Strategy/ Market Penetration Strategy), Coach sales

continued to be stronger and increasing from adding stores in North America and China.

Furthermore, Coachs international wholesales also rose. These led to higher sales compared to

previous year. Net profit and ROIC increased; however, Return on sales was almost same as

Year 2010 as Coach still spent high SG&A expense to support higher sales.

Each Corporate level strategies Coach pursued over 2007-2011 may not maximize long-

run profitability due to following cases. For Market Penetration Strategy, when the market in

North America, Japan etc. saturates or Coach does not gain economy of scale from increasing

stores then this strategy would not be effective strategy and maximize long-run profitability of

Coach anymore. For Market Development Strategy, It could not be appropriate when Coach does

not have excess production capacity anymore. However, each corporates strategy could

maximize long run profitability if the company achieve economy of scale from increasing

production capacity and gain customer satisfaction over the time as customers would keep

purchasing on those products, then the company could benefit from increase in revenue and

profit.


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Question 7: How is the effectiveness of the companys strategies?

a) Drawing the straight line graph to compare sales revenue, profit, profitability (ROIC)

and profit growth of all companies for the last five to ten years and summarize your

findings.

Answer:

Revenue in

thousand USD2007 2008 2009 2010 2011

Louis Vuitton 17,231,500 20,697,705 19,959,192 22,643,877 28,042,115

Coach 2,612,456 3,180,757 3,230,468 3,607,636 4,158,507

Gucci 2,828,020 2,868,320 2,894,320 3,465,930 4,086,160

Kate Spade 2,850,070 2,457,642 1,928,754 1,623,235 1,518,721

Michael Kors 312,655 397,074 508,099 803,339 1,302,254


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Net Profit inthousand USD

2007 2008 2009 2010 2011

Louis Vuitton 4,036,500 3,924,700 4,026,100 7,010,900 6,071,000

Coach 1,034,670 1,194,949 977,081 1,158,132 1,301,219

Gucci* 637,143 936,455 803,010 984,360 1,232,010

Kate Spade (372,282) (951,559) (306,410) (252,309) (171,687)

Michael Kors 60,117 13,039 30,788 56,877 126,137

ROIC 2007 2008 2009 2010 2011

Louis Vuitton 35% 24% 26% 46% 34%

Coach 54% 109% 85% 101% 118%

Gucci -38% -68% 121% 91% -329%

Kate Spade -26% -52% -33% -19% -17%

Michael Kors 0% 0% 0% 42% 47%


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When compare sales of all companies, we can see that Louis Vuitton generated revenue

more than other brands. Also, its net profit tended to go up according to sales. Coach, Gucci,

Kate Spade and Michel Kors had sales following Louis Vuitton, respectively. Coach and Guccis

Profit were in the same level while Kate Spade experienced loss over five years. However, when

compared ROIC, Coach had highest ROIC over five years and was more than average ROIC.

Coachs ROIC was likely to increase. However, Profit Growth of Coach was below average. We

can see that Michel Kors had highest Profit Growth during 2009-2011, following is Louis

Vuitton, Gucci, Coach and Kate Spade.

In summary, although Coach sales tended to increase, profit was not high and lower thanaverage. However, Coachs ROIC over five years is above average which showed that Coach

had high efficiency to generate profit from invested capital than other companies in this industry.

ro t rowt

Profit before tax2007 2008 2009 2010 2011

Louis Vuitton -2.77% 2.58% 74.14% -13.41%

Coach 15.49% -18.23% 18.53% 12.35%

Gucci 46.98% -14.25% 22.58% 25.16%

Kate Spade 155.60% -67.80% -17.66% -31.95%

Michael Kors -78.31% 136.12% 84.74% 121.77%


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b) Compare profitability (ROIC) and profit growth of all companies for the last five to ten

years by plotting the graph with ROIC (Horizontal axis) and Profit Growth (Vertical axis)

and conclude your findings.

Answer:

Coach had highest ROIC compared to others which meant that Coachs strategy is

efficient in that they could generate high profit from invested capital. However, when compared

Profit Growth rate, we can see that Coachs Profit Growth rate did not much resulting from high

SG&A expense from Coach effort to expand market share.


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c) Prepare BCG Growth-share Matrix to show the competitive position of all companies for

the last five to ten years.

Answer:

From BCG Growth-Share Matrix, Coach had been categorized as Question Marks which

meant that Coach has not much high business growth rate over 2007-2011 and its market share

still be low. Coach status is same as Gucci. Louis Vuitton is between Star and Cash cows as its

market share were highest. For Michel Kors, we can see that it had highest business growth rate

but market share is lowest.

BCG Growth-Share Matrix as of 2007-2011 (Considering major luxury competitors)

Revenue in thousand USD 2007 2008 2009 2010 2011 Sale (2007-2011)

Louis Vuitton 17,231,500 20,697,705 19,959,192 22,643,877 28,042,115 108,574,389

Coach 2,612,456 3,180,757 3,230,468 3,607,636 4,158,507 16,789,824

Gucci 2,828,020 2,868,320 2,894,320 3,465,930 4,086,160 16,142,750

Kate Spade 2,850,070 2,457,642 1,928,754 1,623,235 1,518,721 10,378,422

Michael Kors 312,655 397,074 508,099 803,339 1,302,254 3,323,421

Total 39,109,768 155,208,806

Company

Relative

Competitive

Position (2007-2011)

CAGR Revenue

2007-2011Market Share

Louis Vuitton 6.47 12.95% 69.95%

Coach 0.15 12.32% 10.82%

Gucci 0.15 9.64% 10.40%

Kate Spade 0.10 -14.56% 6.69%

Michael Kors 0.03 42.86% 2.14%


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Calculation

1. Coach

Coach: Consolidated Income Statement

Unit: thousand dollar 2007 2008 2009 2010 2011Revenue 2,612,456 3,180,757 3,230,468 3,607,636 4,158,507

Cost of sales 589,470 773,654 907,858 973,945 1,134,966

Gross profit margin 2,022,986 2,407,103 2,322,610 2,633,691 3,023,541

Selling & Admin expense 1,029,589 1,259,974 1,350,697 1,483,520 1,718,617

Operating income 993,397 1,147,129 971,913 1,150,171 1,304,924

Interest Income 41,273 47,820 5,168 7,961 1,031

Other expense - - 4,736

Net Prof it (Income before tax) 1,034,670 1,194,949 977,081 1,158,132 1,301,219

Income taxes 398,141 411,910 353,712 423,192 420,419

Profit 636,529 783,039 623,369 734,940 880,800

Balance Sheet

Unit: thousand dollar 2007 2008 2009 2010 2011

Cash 556,956 698,905 800,362 596,470 699,782

Current asset 1,740,196 1,385,709 1,396,409 1,302,641 1,452,388

Current liability 407,996 450,941 459,652 529,036 593,017

Fixed asset 368,461 464,226 592,982 548,474 582,348

Tax rate 40% 36% 36% 37% 32%

Invested captal 1,143,705 700,089 729,377 725,609 741,937

ROIC 54% 109% 85% 101% 119%

Return on sales 40% 38% 30% 32% 31%


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2. Louis Vuitton

Exchane rate:EU/USD 1.3

Unit: USD million 2007 2008 2009 2010 2011

Revenue 21,425 20,698 19,959 22,644 28,042

Cost of sales 7,522 7,816 8,013 9,339 10,520Gross profit 13,904 14,535 14,156 17,077 20,237

Mkt.& Selling expense 7,478 7,935 7,866 9,227 10,868

General & Admin expense 1,804 1,884 1,932 2,232 2,527

Profit from recurring operation 4,622 4,716 4,358 5,617 6,842

Other operating income & expense 164 186 248 198 142

Operating profit 4,458 4,531 4,109 5,420 6,700

Cost of net financial debt 269 334 243 196 196

Other financial income & expense 59 31 202 992 (118)

Net Financial income (expense) (211) (303) (42) 796 (315)

Net Income before tax 4,037 3,925 4,026 7,011 6,071

Income taxes 1,109 1,161 1,104 1,910 1,889

Income (loss) from investments in associates - - - 9 8

NET PROFIT BEFORE MINORITY INTERESTS 3,138 3,067 2,964 4,315 4,505

Minority interest (398) (380) (283) (373) (520)

NET PROFIT 2,633 2,634 2,282 3,942 3,985

Tax rate 27% 30% 27% 27% 31%

Balance Sheet

Unit: USD million 2007 2008 2009 2010 2011

Cash 2,027 1,317 3,180 2,980 2,994

Current asset 12,997 13,460 14,268 14,559 17,247


Fixed asset 7,036 7,905 7,982 8,753 10,422

Invested captal 8,369 11,449 11,207 11,154 12,203

ROIC 35% 24% 26% 46% 34%

LVMH: Consolidated Income Statement


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3. Michel Kors

4. Gucci

MK: Income Statement


Revenue 312,655 397,074 508,099 803,339 1,302,254

Cost of sales 165947 208283 241,365 357,274 549,158

Gross profit margin 146,708 188,791 266,734 446,065 753,096

Selling & Admin expense 108407 147490 191,717 279,822 464,568

Operating profit 38,301 41,301 75,017 166,243 288,528

NET PROFIT 60,117 13,039 30,788 56,877 126,137

Tax rate 40% 41% 29% 46% 41%

Balance Sheet


Cash 5,664 21,065 106,354Current asset 245,398 464,063

Current liability 127,725 165,006

Fixed asset 119,323 170,755

Working capital 12,167 13,739 51,263 117,673 299,057

Invested captal 12,167 13,739 45,599 215,931 363,458

ROIC 189% 176% 118% 42% 47%

Gucci: Income Statement

Exchane rate:EU/USD

Unit: USD million 2007 2008 2009 2010 2011

Revenue 2,828.02 2,868.32 2,946.32 3,465.93 4,086.16

Cost of sales - - - 2,481.57 2,854.15

Operating profit 637.14 936.46 803.01 984.36 1,232.01

tax rate 24% 34% 34% 28% 23%

Average tax rate

Balance Sheet

Unit: USD million 2007 2008 2009 2010 2011

Cash 2,227 1,452 1,228 1,652 1,817

Current asset 10,332 9,434 6,847 9,023 6,860


Fixed asset 2,827 2,929 2,420 1,851 1,784

Invested captal (1,258) (910) 440 778 (288)

ROIC -38% -68% 121% 91% -329%


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5. Kate Spade

Question 8: What issues does the company need to address?

Answer:

According to Coachs strategies and external factors, there are 4 issues that the company

should take into account. External factors such as highly competitive market, the economic

slowdown and internal factors from the current strategic planning are discussed as follows.

1) The accessible luxury industry becomes more competitive.

According to Coach Inc.2012, no. of competitors was increased. Since the attractiveness

of this segment persuaded both new competitors and the existing traditional brands such as Louis

Vuitton, Gucci extending their product lines such as DKNY, Giorgio Armanis Emporio Armani

line into accessible luxury. Because for accessible luxury segment barrier to entry was low for

the existing luxury brand, thus Coach had to be aware of this issue in order to maintain their

market share. (Threat)

Kate Spade: Income Statement


Revenue 2,850,070 2,457,642 1,928,754 1,623,235 1,518,721

Gross profit margin 2,034,246 1,835,790 1,352,325 1,238,521 809,391Operating profit (433,028) (733,885) (318,058) (179,514) (96,252)

Net income (372,282) (951,559) (306,410) (252,309) (171,687)

Net income applicable to preference shareholder

Tax rate 30% 30% 30% 30% 30%

Balance Sheet


Cash 205,401 25,431 20,372 22,714 179,936

Current asset 1,564,841 1,059,403 886,931 611,923 551,745


Fixed asset 580,733 572,428 444,688 375,529 238,664

Invested captal 1,169,788 979,171 668,695 668,695 391,858

ROIC -26% -52% -33% -19% -17%


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2) The economic growth at slow rate after recovery.

Resulting from the economic crisis in 2008-2009, GDP growth rate in EU country and

U.S. dropped significantly in 2008-2009. It affected the spending power of consumers especially

in the major market share from U.S.and Europe which were about 60%. Its consumption would

drop at rate 0.6%/year except in the emerging market like China and India. It can be observedfrom almost all top ten luxury brands revenue was dropped in 2009. However, from 2009-2012,

the economic was recovered but at the slow growth and those still was lower than the period

before the economic crisis. Therefore, Coach had to change the strategies applied in each region

because some regions like EU and U.S. has low GDP growth rate while it had more market share

as compared to the emerging market which had more potential growth but it has lower market

share. (Threat)

Source:CoachInc,2012

Source: World Bank Group
http://econbrowser.com/archives/2009/04/the_great_receshttp://econbrowser.com/archives/2009/04/the_great_reces


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Source: https://www.imf.org/external/pubs/ft/weo/2013/update/02/

3) Dilution Brand

It was from the strategies that Coach used for distribution channel through factory stores,

retail stores and full-price stores and the price strategy applied to each distribution channel. For

factory stores, 75% of the products sold only in the factory and other 25% from the discontinued

products with the price discounted from 10%-50% of the full price. Its location was far from the

full price store at least 40 miles. However, from the attractiveness of the price strategy, some

customers preferred to buy at lower price rather than the full price. This leaded to the successful

of factory stores in 2011 as the no. of factory stores in North America increasing from 2007-

2011 by 54% compared to Retail stores which was only 33%. The strategies for factory storesthat target value-oriented customers affect the customers decision to buy at full price. Another

reason was due to the product discounted price, it could weaken the position of coach as a luxury

brand. (Threat)

Source :CoachInc 2012


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4) Potential Growth for mens products

Men spending on luxury goods were increasing. From Coach Inc 2012, there were a

proportion of men spending on luxury hand bag. In addition, the annual growth in global unit

sales of luxury bags for men was around 4% and it was relatively at constant growth rate.

Moreover, referred to Euro monitor, from 2010-2014 the price of luxurys bag per volume soldseemed to increase after 2010. Therefore, there was the opportunity for men product on their

price strategy and market share. (Opportunity)

Source: http://qz.com/332472/man-bags-are-now-one-fifth-of-the-luxury-handbag-market/


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Question 9: What problems is the company facing?

Answer:

From each issuing, Coach had following problems.

1)

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