The Coach Company’s Strategic Management Analysis

Introduction

Background information

Organizational growth and performance is always under the influence of strategic management, changes in organizational structures, policies, management and standards¹. However, the process of implementing new ideas, concepts and business processes has to be efficient and effective in order to bring all the expected improvements. A number of companies have undergone managerial, strategic and policy in changes in order to remain competitive, expand market reach and counter existing competition.

The Coach Company is one of the organizations that spearheaded organizational changes in their management through advancement of marketing strategies in order to expand sales and profits². This report reflects on strategic issues affecting the company, including elements of the industry and the company’s financial health, performance and challenges.

This report explores strategic management at the Coach Corporation in the modern context. The report examines the external and environments and assesses how these environments impact on the corporate development that Coach applies. Moreover, the report examines the company’s strategies employed to achieve and maintain a competitive advantage. Four major techniques are used to analyze the organizational external and internal environments- an industrial analysis, SWOT, industrial, financial analysis and analysis of the competitive forces affecting the company.

Company overview

Founded in 1941 in the 34^th Street region of Manhattan, New York City, Coach Inc. is an American company that specializes in manufacturing and distributing leather items such as handbags, briefcases, shoes, wallets, key chains and umbrellas among other accessories. During its foundation, the company started as a small partnership business under the name of Gail Leather Products, which was owned and operated as a family business under the ownership of the Gail family.

However, within five years, Miles Cahn and his wife Lillian Cahn joined the business. Initially, the two entrepreneurs were operating a business that specialized in the manufacture of leather handbags. Their presence at the Coach Company meant that their long time knowledge in the leatherwork business was a major boost to the young organization. By 1950, the Miles family had taken over the control of the company.

Within a few years, Miles Chan invented a method for making leather soft, strong and flexible along with another method for applying deep-toned color. By 1961, the Miles family had completely purchased the entire company. In the decades that followed, the company increased its production, innovation and markets. In 1985, the Miles family sold the company to Sara Lee Corporation for about $30 million³.

The new owners took over the company’s assets, ventures and stores. In addition, it opened a number of other outlets in New York. Between 1985 and 2010, the company was operating more than 600 stores located in the US and Canada and was still planning to open more stores in the region. Moreover, the company has been operating a strong online sales business that allows customers to select products, place their orders and receive products from the company’s distributors.

Currently, the company maintains its headquarters in the 34^th Street in Manhattan, New York, with branches in other American cities. According to Chevalier and Mazzalovo⁴, Globally, the company has ventured into foreign markets in a number of cities in countries like Japan and China, where it is operating stores.

In addition, Coach has a number of distribution outlets in France, Italy, Hong Kong and South Korea. Its initial public offer (IPO) was made in 2000 at the New York Stock Exchange (NYSE). Since then, its financial health has grown rapidly. Although it was affected by the 2007 to 2010 financial meltdown in the US and other parts of the world, the company has developed strategic approach to manage its business, which has seen its performance increase significantly and recover from the crisis.

Analysis of the external environment for Coach Company

Industrial analysis

A luxury good or service is a product with a unique characteristic of demand and supply in the market. According to Chevalier and Mazzalovo⁵, the demand of a luxury good or service increases more rapidly than the increase in general income. In addition, it can also be termed as a necessity product whose demand increases less proportionally with rise in general income.

These goods are characterized with high-income elasticity of demand. Chevalier and Mazzalovo indicate that this phenomenon results because as wealth increases, people tend to buy more of the product. However, Needles, Powers and Crosson⁶ show that the demand declines when wealth declines. The most significant aspects of this industry are the tendency of brand quality and superiority of the quality. In America alone, the industry has advanced since the year 2000, colliding with Coach’s first IPO.

The world luxury industry goods market includes handbags, jewelry, watches, fashions and cosmetics among other items. The world luxury industry grew by 8.2% in 2013 alone, reflecting on the increase in income between 2010 and 2013⁷. Companies try to beat each other on quality and price. Advertisement is a major tool for creating competitive advantage, with some American companies making over 3,500 advertisements per annum. However, consumers tend to have their own brands, unlike other goods where prices and availability determine what one buys.

According to Chevalier and Mazzalovo, Leather industry is one of the most advanced, profitable but highly competitive and risky industries in America and other parts of the world. Moreover, Chevalier and Mazzalovo indicate that the phenomenon is partly because leather goods are mostly luxury commodities, and consumers have a tendency of choosing their goods depending on personal preferences, amount of money available and the type of the product.

Moreover, to produce quality leather products, quite a lot of resources are pumped towards technology, labor and expanding sale channels through advertisement. The industry earns over three billion dollars per year in America alone.

The luxury goods industry in both America and other parts of the country, especially where Coach has branches, is complex and diverse. In the United States of America, the domestic market consists mainly of handbags, briefcases, casual shoes and auto upholstery. The leather commonly used is cattle hide (accounting for about 95%), while pig, lamb, deer and reptile skins are also widely used as raw materials.

Competition in the industry is quite high in all these countries. However, during the 1980s, there was effective consolidation in America, resulting in fewer smaller companies and several large companies competing. Currently, the industry is dominated by large companies, which make about eighty percent. Most of these companies are based in New York State.

Competition is quite high here, but recognition of brands saves Coach, and the fact that coach offers the best price for its quality products. Entry of large market malls, hypermarkets and supermarket chains has also increased competition for the market. The problem of counterfeit seems to be malignant in American and Asian markets. The phenomenon has caused most companies to lose sales.

Analysis of Competitive Forces

Entry of new competitors

consolidation of companies in 1980s helped to reduce market competition in America, and there is probability of the same occurring in China in the near future. However, the threat is quite far from over. This is because competition trend has changed from manufacturers-manufacturer to a retailer-retailer form of competition. There is always a risk of new retailers entering into the market. With recent announcement by several multinational retail chains in various locations, Coach must be ready for stiff competition.

For example, Wal-Mart has plans to open new branches in China, Hong Kong and South Korea. Other retailers are likely to follow suit. Economies of product differences have a put Coach Inc. at a better position especially in America, where consumers recognize their preferred products based on price and quality. There are several barriers to entry, including patents and rights of ownership, which have saved the company from competition.

However, the problem of counterfeit products is prevalent especially in China. Coach Inc. has won customer loyalty through offering high quality products and at the best prices. Moreover, new entrants in America are barred by the high capital requirement, which is estimated to exceed twenty million dollars.

Competitive rivalry: in America alone, there are over one hundred companies, which specialize in manufacturing leather products. Of these, about seventy-two are located in New York State, where Coach’s headquarters are located. Most of these companies, such as JDS Corporation and Four Lions International, have also consolidated the international market, thus posing as some of the strong competitors for the company’s world market. Nevertheless, Coach Inc. provides its customers a good deal, including low-priced, high quality and customer-appealing products. The use of latest technology at any one time keeps the company ahead in terms of production.

Purchasing Power

The number of customers has been increasing since the year 2000, especially because of the value and popularity of stocks in the IPO. Between 2000 and 2007, the world economy was performing well and thus the peoples’ wealth increased. In response, the people’s purchasing power increased significantly, a fact that increased the company’s sales in both the stock market and the goods market. The stock market increased at a rate of 1,400% while the annual growth rate in sales was 26% by 2007.

Threat of substitution

The Company has always applied the best technology in the process of manufacturing, aimed at producing customized products which are customer appealing. Moreover, it is quite difficult for other companies to duplicate or produce exactly the same brands, since there is a factor of trade secrets in manufacturing process, accompanied by research and innovation.

The power of suppliers

Since the suppliers to the company are mostly livestock farms, there is a steady supply of raw materials and at constant prices. According to Needles, Powers and Crosson⁸, the company seeks to select reliable suppliers on contracts required by the law.

Internal environment

Driving forces

Customer satisfaction

The Company must intensify its role in satisfying its customers, especially at a time when competition seems to intensify each minute. Customers are not only satisfied by the prices and product quality, but by the way, the company has been handling its customers, relating with them and the way of responding their requests. Its employees are well trained on how to handle customers. However, much has to be done. According to Kenneth and Hackel⁹, This process must include improvising a new customer care centers through the internet, telephone communication and at strategic positions in America and others in Asia¹⁰.

Internet trade and communication is an important tool in commerce, especially at a time when most customers prefer e-commerce to conventional purchasing due to the need to save time and travelling costs. Needles, Powers and Crosson¹¹ state that the inclusion of web-based trade, including customized website where customers can use-shopping carts, online requests, enquiries and payments, has increased the sales. Moreover, the company has grown in line with globalization trends. According to Kenneth and Hackel, the phenomenon also causes an increase in the customer satisfaction.

Demographics

There are trends in cases of customers shifting their buying centers, probably due to the diversification of channels of retailing. However, Coach has consolidated its market share, which was at 7% in 2007. Its customers have increased with time. Despite this achievement, the company must be aware of a looming global recession, predicted to begin in early 2008. In this case, the company must enhance its market channels in order to consolidate on sales and maintain its customers.

Analysis of Strategic management at Coach Inc

Strategies

The company has achieved much from the past strategies initiated in the past, especially during 2000 financial year, including the successive IPO. Increase for sales in stock has resulted in the public’s positive perception of the company, especially due to a well-organized management and annual increment of profits

The entry into the Asian market, especially in Japan and China has intensified the company’s profitability for the past seven years. The Japanese market, for instance, has been successful, as indicated by its recent ranking (number 8) in the category of largest retailer. The decision to expand the Asian market was accompanied by the need to include brands that Asians preferred and were not available in America. For instance, women handbags designed in Japanese style were widely accepted than the European or American brands, mostly because of differences in traditions between America and Japan.

SWOT Analysis

Strengths

The company has an advantage on quality, price, and advertisement and thus consumer satisfaction. Increase in sales and the value of stocks has increased due the public positive perception, alongside with increased advertisement programs. The company has equaled its competitors in terms of quality. However, it beats its competitors by offering the most affordable prices both in America and in Japan.

Weaknesses

There are several areas, which need be reviewed for improvement. These include the possibility of an upcoming global recession that may lead to reduced sales. According to Herman, Skyla and Keck, the company has not been successful in reducing the chances of counterfeit, especially in China where companies are known to duplicate others brands as theirs. While other companies have increased their outlets in Western Europe and Russia, Coach has put little or no effort in entering the market, which may lead to reduced sales in future.

Opportunities

There are still many areas of commerce, which are yet to be fully utilized for profitability. This include the intensification its web based market to include online payment, mobile money which is fast becoming in use, especially in less economic powerful but equally large markets such as India, Egypt, South Africa and Pakistan. In these countries, there is also less competition when compared to the American and European markets. The company can increase its profitability if it focuses on these new markets.

Threats

There is the possibility of new market entrants in Asia and Europe. Specifically, Chinese companies are becoming more aggressive, and they are focusing more on middle-income countries, where large multinational like Coach have been reluctant to penetrate. There are also chances of reduction in sales in America due to a looming global economic recession.

Financial Analysis

The company’s financial health can be determined by its past performance in terms of revenue, gross profit, operating margin and financial ratios. According to a report provided by the global journal Reuters¹², The total revenue increased from 2,035 million dollars in 2006 to 2,612 million dollars in 2007, net income increased from 494 to over 660 million dollars, while gross profit increased from 1,581 to 2,022 million dollars for the same period ended 2007. Reuters also reports that these facts indicate that the company can easily repay loans, meet expansion costs, provide attractive dividends to shareholders and stakeholders, and diversify its market into new and upcoming areas.

As the cost of raw materials and production per unit remained constant over time, the net profit has been increasing since 2000. Most of the profits came from sale of stock and the new markets in Asia, especially Japan. Of importance is the shift of focus towards women luxury products, which has increased sales by a large margin. Most of these profits came from outlet stores. The cost of doing business has increased over the years due to the cost incurred in extension of new stores in America and Asia, as well as advertising.

Proposed Strategic Plan for Coach

To ensure that the company improves its strengths and deals with the current weaknesses, it is important to develop a strategic approach to its business in order to take the advantage of the current and future opportunities and reduce the risks associated with the identified threats. In this case, a number of approaches must be used to enhance growth and improve performance in a highly competitive market and a dynamic external environment.

Retail planning approach

First, the company should develop a comprehensive retail plan in order to ensure that the products remain relevant and popular in the dynamic market. To do this, the company must lead a cross-functional team that will include sales, finance, business development and merchandise planning sections. Secondly, it must develop a comprehensive understanding of the business operations and explain the results of the sales trend once in every month.

For instance, it is important to become an expert in examining and analysis the seasonality of the trends, including the financial trends and customer behavior in various seasons throughout the year. In addition, the company will manage complex processes with am a number of deadlines in order to achieve error free market projections, work product as well as presentations in the target market.

Business strategy

This plan suggest that the company seek a number of ways to challenge the current nature of business in order to reduce the negative impacts of the status quo through creation of efficiencies, identification of opportunities and recognition of improvement in sales and marketing. For instance, the company will be required to enhance its marketing strategies to include an additional trade agreement with companies such as Amazon in order to ensure that the presence of its products in the e-commerce websites and systems is strong enough to attract customers on a global perspective.

In fact, it is important to ensure that every region or country has at least some outlets and delivery channels, which will ensure that the customers who make orders online will be provided with the ordered products within the shortest time possible. This means that the company must update its business strategy to “go global”, which is one of the current trend that other companies, including competitors, are attempting to utilize.

Recommendations for improvement

The company could increase its profitability through the applications of several initiatives aimed at competitive advantage. Marketing strategies could be the main advantage that the company could employ. For instance, although coach has been employing several advertisement strategies, it has not been able to woe foreign consumers.

The Chinese and Japanese women as well as most Orientals, for example, are known to be customs conserving at any one time. To improve the advertisement in these specific countries, Coach must include a number of strategies in its operations. First, it must consider using an application of promotion programs similar to those that are already in place in the USA. Secondly, it should consider an increment of advertisement funds aimed at increasing the number of programs, which are set in place to woe consumers in any of the countries that the customer is in operation.

Moreover, the company is recommended to approach and include a number of advertisement companies, programs and organizations that are well conversant with advertisement strategies such as the Oprah Winfrey Corporation as well as Tyra Banks show.

By using such organizations and programs as Tyra Banks Show and the Oprah Winfrey Corporation, the company will stand a better chance of wooing women to buy its products, specifically because most of its products are made specifically for female consumers and the two advertising organizations target female viewers as their major audiences. Moreover, it would be important for the company to consider cultural factors that affect the market in foreign nations such as China and Japan, which is similar to the suggestions by researchers such as Herman, Skylar and Keck¹³.

Conclusion

This report provides evidence that Coach Inc. has a number of weaknesses in its business strategy. Thus, there is an urgent need for a proper and effective strategic plan in order to enhance its strengths using the existing and expected opportunities. For instance, it has been shown that technology plays and will continue playing a significant role in the process used for marketing. To be in line with the dynamisms of the market, the company must use the internet technology to understand customer needs, trends in market demands and the impact of social, financial and other aspects of the external environment.

To achieve this, this report recommends that the company must use diverse approaches in foreign markets because the local market needs, demands and socioeconomic aspects differ from one nation to the other. In this case, the strategies used in the US and Canada should be changed slightly to conform to the local needs, which are mostly defined by the social and cultural diversities identified under the Hofstede’s model.

Footnotes

1. Chevalier, M & Mazzalovo, G, Luxury brand management: A world privilege, John Wiley and sons London, UK, 2012
2. Herman, Skylar, S & Keck, G, The HIP investor: make bigger profits by building a better world, John Wiley and sons London, UK, 2011.
3. Ibid
4. Ibid
5. Ibid
6. Needles, B, Powers, M & Crosson, Principles of accounting, Cengage Learning, New York, 2011.
7. Ibid
8. Ibid
9. Ibid
10. Kenneth, S and Hackel, Security valuation and risk management: Assessing value in investment decision-making, McGraw-Hill, New York, 2013.
11. Ibid
12. Reuters, Coach incorporated: company financial statements, 2014.
13. Ibid