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COACH STRATEGY

COACH: RETAIL STRATEGY

COACH overall retail strategy

PRINCIPLES OF RETAILING

LAUREN HOHEUSLE

APRIL 14, 2011

BACKGROUND/ OVERVIEW

Coach Inc. was established in 1941 in Manhattan by a small, family-owned workshop that specialized in making small leather goods. A main component of the company since 1946 was Miles Cahn, who helped Coach get to its “signature” style and find its place in the market as a luxury genuine leather purse company (1960). When he took over, he brought the 6 workers hand-crafting leather goods in a tiny loft, to a full-blown, successful business. In 1962, Bonnie Cashin was hired as a designer, who is said to have revolutionized the company and its bag image. In 1982 Coach was sold for $30 million to Sara Lee Corporations; this is when the brand really began to grow and expand in all aspects of the business. They were opening stores all over the country, and even opened stores internationally in Japan and England by 1988. Coach also began expanding their market to include shoes, menswear, jewelry, and many other high quality goods that held on to their “classic American” image. From just 1985 to 1989 Coach increased their sales upward of 5 times the dollar value, reaching $100 million. In 1997, Coach began linking up and creating partnerships with other companies, such as Movado. They started a watch line that was extremely popular. In 1999, Coach.com was introduced to the public, which increased profits tremendously.

Now for more than 60 years, Coach continues to embody their “Classic American Style”, with an even broader range, and a more modern touch. They offer more than just a product; they offer a lifestyle and that’s something they have not lost sight of, which is why they continue to be so successful. Their main target market is women, ages 25-40, making six-figures. However, in the past 10 years, a large percentage of their sales are going to the younger women, ages 14-25. They have incorporated them into the brand with their release of the “Poppy” line; a little cheaper, often not leather, and clearly for the younger crowd. It is much more vibrant and “fun”, and includes a lot more of their tees, jewelry and accessories. This was a smart decision as to include them so they still feel valued as customers, but make such a clear distinction so that it does not make their main target market feel as those their Coach bag doesn’t hold as much value. (Ex. A woman who spends $500 on a bag may feel somewhat “offended” seeing a 14-year old with the same “classic” purse.

Lilian Cahn, former owner of Coach Inc., stated that “At Coach, the brand is at the core of the company's vision and strategy. The values of the brand--customer satisfaction, integrity, innovation and collaboration--are the reasons Coach's people come to work each morning. The strength of the Coach brand is, ultimately, what makes Coach the company it is today”. This quote sums up the value that their target market sees in them and their purpose as a company.

Today, Coach is part of the national stock exchange, and has estimated revenue of over $3.23 billion, an operating income of over $977 million, and a net income of more than $623 million (FY 2009). Currently, Lewis Frankfort is the CEO, Jerry Stritzke is the president, and Michael F. Devine is the CFO. As a team, they truly have held on to the traditional style while adding a modern twist. They have created lifetime customers, and beat out much of the competition. Their growth, profit, and expansion prove that as a company, Coach is doing something right!

MERCHANDISE ATTRIBUTES

Coach is an exclusive line carrying quality genuine leather handbags as their main component, making up about 63% of all profits by the end of fiscal 2010. Their other key sellers are wallets, clutches, and shoes. Coach also sells jewelry, outerwear and other apparel, and they recently introduced their men’s line which carries products including suspenders and socks. This segment of their company has recently become extremely important, providing that it has accounted for almost 28% of their sales. Coach sells many accessories that are a key aspect to their business as well. Their accessories include sunglasses and eye glasses, key rings, luggage, pet clothing, watches, fragrance, belts, and scarves. Coach announced in 1991 that they wanted to move further and more “aggressively” into the leather accessories market, and they did so successfully. Coach also stated that they wanted to market products to a younger crowd as well. To assist, they hired An American Legacy, an advertising agency that was new, young, and perfect for the job. They did a whole new, mass introduction to the company, called “Poppy”, to help with movement. Instead of introducing just a “bag” line, the Poppy line includes all aspects of what they sell; clothing, shoes, jewelry, accessories and of course, bags and wallets. This was brilliant, because not only did it incorporate a new major age group that was purchasing the product, it also helped them succeed in becoming more “well rounded” (selling and promoting accessories and clothing, not just bags).

Coach has also created many different bag lines, and collections over the years. They have expanded from using traditional, darker toned leathers, to bright, vibrant colors, such as blues, pinks and purples. Their current bag collections are all titled after girls names. Their “Natalie collection” consists of wicker and straw material, with floral accents. Coach.com describes the collection as being “inspired by warm-weather style” and taking a “luxurious approach to an otherwise casual concept: the classic straw bag….Rustic romance meets modern glamour with elegant contrasts.” There is also the Madison collection, which they named after the “most elegant

THE“Natalie”COLLECTION avenue in New York.” The Kristin collection was inspired by a striking curved clasp on a vintage bag, and therefore each bag in the collection has interesting, bold hardware and statement clasps. Also included in their line is the Alexandria collection, Poppy, and Coach Originals. All lines include all leather, high-quality logo and cloth bags, and combination bags.

The Coach Shoe collections include flats, heels, wedges, boots, rain boots and sneakers. Every season, the shoes are crafted to match and pair well with the seasonal bags. The aesthetics of the shoes are gorgeous and high-quality. All of Coach’s products, whether it be handbags, clutches, shoes, or accessories, Coach is always sure to use the highest quality of goods, and pay close attention to detail; this is why their customers are so devoted to the brand. The little things make a huge difference at Coach, because they are what make the customers feel special, and as though they are getting their value.

CONSUMER PROFILE

Demographics-The demographics of a Coach customer are tricky. Traditionally, it is a mid to upper-class woman, age 25-40, who is concerned with fashion and quality. She was considered an “elite shopper”. However, in the past decade, the “typical” coach customer has changed drastically. It has come to include business men, and the teenage girl group. Most customers are home owners, white-collar workers. The Coach customer, no matter what age, is willing to travel the distance in order to shop for the product. Coach is a destination store.

Because so many changes have happened concerning demographics, Coach had to deal with this to effectively figure out WHO their targets were. In 1996, sales in Japan dropped almost 30%, which alarmed the CEO and president. To help fix the problem (fast) they used and developed an incredible tracking system.

Frankfurt, the CEO of Coach stated that “Fortunately, our continuous tracking and our multiple views of the customer provided us with a way to attack this problem…We found out why new customers were down, and as to lapsed customers, we found out exactly why they left and what competitors they had moved to.”

Coach kept their classic style, but added a more fashion-forward edge .They include lines that are upward of $1000 for bags, but also include lines that include bags less than $200. This combination of accessible price points (that are still of great quality) broaden their potential (and actual) customer base.

Lifestyles- The lifestyle of the average Coach customer can vary greatly. Many are working women, working men, and younger girls and women concerned with being fashion forward, yet remaining classy.

Motives- The motives of Coach customers are fashion, quality and sophistication. They may want to have the latest bag or chicest style, without having to worry that it will seem “out of season” or untrendy in one season. They are motivated by the “classic” look, with a little bit of edge, without emptying their wallets; which is exactly what Coach delivers. The “special” feeling a customer gets what they walk into the chic and classy Coach store, along with the personable, stylish employees, is also a huge motivator for purchase. Coach appreciates their customers, and definitely lets them know. If you have shopped at Coach and are included in their data base, each season, a card is sent to you, signed by the president of the company. The card states how valuable you are and as their appreciation, your next purchase will be 25% off (in store only). This makes it seem like more than just a coupon. It makes it authentic and welcoming. It also creates brand loyalty and speaks to those customers that are cost-conscious.

Shopping attitudes and behaviors- Coach customers are willing to spend more than say someone shopping at Nine West for a bag or shoes, or most clothing stores. They refuse to sacrifice quality, but also don’t want to spend their life savings. They expect good service, and want to feel as though they get their money’s worth, in all aspects (service, atmosphere, quality).

TOTAL RETAIL EXPERIENCE

Includes all elements in a retail offering that encourages or inhibits consumers during their contact with the retailer.

Value-oriented retail strategy-Coach is largely value-oriented in many different ways. Coach focuses largely on quality. They use only the finest leather, and Cahnn, the original owner of Coach, developed a specific way to make such quality, deep-toned, leather, that softened over time rather than looking warn and used. This quality has not changed, and this is one of the main components of quality for the customer. Coach creates such elegant advertisements that do not just sell the product; they sell an image and lifestyle. They are so classy and timeless, that the ads appeal to almost anyone in Coach’s target market.

Taken from Coach.com’s “company information” page, listed below is their mission statement, and what they see as true value to their customer.

Mission statement:Coach seeks to be the leading brand of quality lifestyle accessories offering classic, modern American styling.

VALUES
The Brand is Our Touchstone.

The Coach brand represents a unique synthesis of magic and logic that stands for quality, authenticity, value and a truly aspirational, distinctive American style. Everything we make, advocate or engage in reflects the attributes of the brand.

Customer Satisfaction is Paramount.

Our responsibility to our internal and external customers calls for impeccable service to ensure that their needs are always met. By treating customers like guests in our own home, we seek to establish long-term relationships based on trust and satisfaction.

Integrity is Our Way of Life.

Our success is rooted in uncompromising devotion to honesty and fairness where our people, our business and our community are concerned. We stand behind our products, staking our name and reputation on everything that we make.

Innovation Drives Winning Performance.

We constantly challenge ourselves to be the very best we can in every aspect of our business. We strive to be a nimble and flexible organization committed to increasing consumer and shareholder value.

Our Success Depends on Collaboration.

Our brand flourishes through our people. Coach brings together strong, collaborative people in a dynamic culture of mutual respect, support and passion for our brand and product. Our team bands together in the face of adversity and celebrates our victories.

http://www.coach.com/online/handbags/genWCM-10551-10051-en-/Coach_US/CompanyInformation/InvestorRelations/MissionStatement

Customer service retail strategy –Coach cares a great deal about their customer service, as shown above. Coach is one of those stores that never seems understaffed, because they make sure they are going to be able to give their customer that full Coach experience, every single time they enter a Coach store. The sales reps are very attentive and welcoming. The company gives quality promise cards with every purchase. They also have coupons sent to those who have been customer the previous season. A great service they have is if they do not have your size in shoes or clothing, or an item you would like in-store; they search for it online or another store within the country, and send it to your house, free of charge. They do not have a rewards program or credit card. Coach has e-mail alerts, where they update you on new arrivals, sales, etc. You can contact them through e-mail, mailing address, in-store, or their 1-800 numbers. Coach also offers limited addition items, which makes the brand even more exclusive for those who value that aspect of the company. They definitely take very good care of their customers, because they have seen how important that is to the total retail experience and value of their customers.

Retail relationships –Coach has many important retail relationships and partnerships. Coach has licensed product, such as their watches with the Movado Group Inc. Their shoes are licensed with Jimlar Corporation, and Marchon Eyewear is used for their sunglasses and eyeglasses. Coach has linked up with Macys, Lord and Taylor and Bloomingdales, accounting for 940 department stores carrying Coach in the United States. All of these relationships broaden the sales of Coach and help target more of their customers while adding greater value. Overseas, because the market is very large in Japan, there is Coach Japan Inc. Coach’s most important retail relationship is with YOU, the customer. They are highly focused on targeting who their customer is, in order to give them what they want. This is part of their competitive advantage, which will be discussed later. They focus on keeping their loyal customers, while expanding to different target markets in order for growth.

PRICING ORIENTATION

Coach is one of the few luxury brands with such a large range of product pricing. As mentioned earlier, this was a risk taken in order to expand their market, and they did so through such technical research and consumer evaluation that it ended up being very successful. Coach prices range anywhere from $20 for a sale keychain at Macy’s or an Outlet store, to $2000 for a beautifully shaped and detailed python bag. The items that are created more for their younger market, such as sneakers, tee shirts, and vibrant poppy wristlets and bags, are priced generally lower; their cheapest bag is $148. For the mid-class, semi-conscious of money consumer, they have a wide range of bags between $258, and $498. For their most luxurious, larger bags, the prices range from $498 to $1200. Shoes range from $58 for sandals, but most shoes ranging from $118 to $258. These prices leave the market open to just about anyone who wants to be able to say they own Coach, but the price points are clearly distinguishable, as to not offend someone who DID by that $1200 bag. The quality is always there, but the detail, luxury and style of the more expensive products are unmistakably statement pieces. Their price points are obviously all ending in 8, except for the ONE bag they have for $1200. This is called psychological pricing, used to make it seem of high value. (It can also be considered price quality association, or prestige pricing) If they ended in .99, it would make it seem cheap. Personally, I think of groceries or sale items when I see .99, as do most people. The full dollar amount makes it seem more appealing, and in a sense, more exclusive. Because most of the items are high ticket items, someone buying Coach is aware of this, and using pricing such as .99 or odd cents, would almost see like they are trying to trick you into thinking you are getting a sale. Coach definitely uses market skimming price strategy.

IMAGE / ATMOSPHERE

The Coach image is unmistakable. Their classic, American, sophisticated style with a splash of modern trend is what makes them so appealing. The atmosphere of a Coach store perfectly complements the elegance of their image. It “sends an inviting image to a new generation of customers”. With the change of their product line, they greatly changed their displays and store image as well. In 1987, on Madison Avenue, in New York, Coach opened up a massive two-story store, which had mahogany walls and marble floors. It also had an atrium and an entire gallery of “leather art”. This darker sophistication was the look of most stores, until it changed in the 90s, to better coincide with their newer, fresher image. They used to have very dark, wood paneling in stores, but they have been replaced with colorful displays and brightness all around. The ceilings are very high, giving an openness appeal. They no longer enclose bags and items within cases, they have them open to handle and touch on tables. Stores generally have very wide, open, heavy doors, which create a very luxurious appeal. The stores are so spacey and clean, that it makes the shopping experience very enjoyable and refreshing. In 2009, Coach opened up a “Coach for Business” store in Boston and Madison Avenue, which carries items specifically for men. They did this in hopes of shifting their image as not just a handbag carrier, but a full-range accessories company for men and women alike. Currently, Coach has 342 of these full-priced stores, and 121 factory outlet stores. The outlet stores maintain that brightness in-store, with slightly lower ceilings and less extravagant displays. This image of their store is part of what they are selling, and part of the whole lifestyle of a Coach shopper. Their non-store based image is just the same. Their website shows advertisements and images of elegant models sporting all Coach items, without over-branding. The elegance of the online experience is untouchable and important because if a customer is not “in-store” it makes it harder to get that full customer experience. However, I feel that Coach does a very good job. Their website is VERY easy to navigate, and they don’t lose the integrity and sophistication of their image.

RETAIL PROMOTIONAL MIX

Coach’s retail promotional mix has been greatly referenced throughout the paper,

From their elegant website and magazine advertisements, to their customer service retail strategy (see page 6). Along with their exclusive coupons for Coach shoppers once per season, Outlet stores, and department store sales, Coach does not offer discounts. This keeps the “value” of the brand. Coach does not use commercials, or the same advertising and promotions that most companies use. This is because they are at the higher-end of the market, and most upper-status brands rely more on word-of-mouth, and the prestige of their brand. They do have catalogues, but they only send then once per season. However, they always have them in-store, and hand one out with every purchase. Most of their advertising and promotion money is spent on magazine ads, and in-store promotional tools, such as window photos and displays. They do, however, spend more on advertising in larger cities, such as NYC. They have done billboard ads in Times Square and bus advertisements. All in all, quality often speaks for itself, therefore Coach focuses more on enhancing the Coach experience in-store and online.

TRADE AREA ANALYSIS- Coach is an American brand, with most of their stores existing in the United States. New York City has the most stores in a concentrated area; however, all 52 states have access to a Coach store. Japan has become the second leader of sales and therefore Coach’s most prominent global expansion area. Hong Kong is the city in Japan where there are the most available Coach stores to visit. Canada also has many stores, along with recent additions to England, Thailand, Spain, and 22 other countries. “As of fiscal year end 2010 Coach was available at over 940 department store locations in the US, 182 international department stores, retail store and duty free shop locations in over 20 countries, 161 department store shop-in-shops and retail and factory store locations operated by Coach Japan, Inc.”. The Coach store on 595 Madison Avenue is one of their largest stores, carrying all products, exclusives, and a large selection of men’s clothing and accessories. This store is by far one of the biggest destination stores Coach has opened. Of course, there are the upper class men and women in New York City that would not have to travel far to be at one of Coach’s best stores. They would be considered the primary market, traveling less than 10-15 minutes distance (with normal New York traffic). The secondary market would include the millions of business men and women, and others working in Manhattan, which is a very large percentage. These customers would be the most consistently returning customers. Their fringe areas include just about anyone not living in New York City. Many people living in the 5 boroughs and suburbs travel to New York City to travel. Even with subways and trains, the time it takes is often greater than 30 minutes. Personally, I don’t go into the city to specifically shop at this location, but I DO plan on going to Coach when I do plan to shop in the city. Part of their fringe market also include the millions of tourists traveling from all over the globe, that want to enter one of Coach’s most exclusive stores in such a big and famous city (close to where the brand was established in 1941). These customers most likely won’t return often, but they do make up a large part of sales, considering people traveling do have discretionary income to spend. The market structure in New York City is much different than most areas where there are Coach stores. There are so many locations in the city, because of the amount of people there. Having so many stores in a concentrated area, therefore does NOT hurt their business. However, because New York City is the fashion capital of the world and there is SO much shopping available, the number of competitors such as Cole Hann, Dooney & Burke, or Kate Spade, is much higher than in other areas. Having so many Coach Stores, in NYC, specifically the one on Madison, is ideal because the concentration of their consumer profile is so prominent. Business men and women are everywhere, and many fashion-conscious women see NYC as their top destination.

SWOT- Strengths, Weaknesses, Opportunities, and Threats

Strengths

· Strong brand equity. Coach has been around since 1941 making fine leather goods, without ever sacrificing quality. They are known by their Coach horse symbol and “C’s”.

· Out-sourcing to cut and maintain lower prices (Cheaper labor in the Middle East and China)

· Loyal customers- they even send exclusive coupons signed by the president to frequent store customers.

· Strong financial performance (increase in stock value)

· Went global, entered China and Japan for major sales profit, along with 22 other countries.

· Branching out with clothing, accessories and men’s.

· Variety for age/income level (Coach leather, Coach Poppy, etc.) They also carry specific styles in Macy’s for lower-income target markets (which is why the can use discounts).

· Exceptional and welcoming customer service in-store. Friendly and attentive staff. Offer free shipping if items are not available or are sold out. Online site is very user-friendly

· Monthly introductions of fresh and new bags, as compared to previous years (only each season)

· Classic style does not go out of trend as often.

· Intense customer database, including customer information of over 9.5 million households, in order to better define target market and create products better suited.

· Use multiple ways to reach customer- one on one customer interviews, phone surveys, etc., in order to improve demand forecasting.

· They monitor early warning signs of customer change through detailed sales data.

WEAKNESSES

· High level of inventory – causes them to need to make markdowns and send to outlets faster resulting in lower than expected profit.

· Large percentage of Poppy line is lower price point, and “over-brands” Coach. Can be viewed as diminishing brand value. Seems very young.

· Geographic concentration- although they are branching out, 70% of stores are in the United States. (Opportunity as well)

Opportunities

· Further development of clothing line and accessories. Coach is trying to be known for more than just their bags.

· Creating off-price stores that carry exclusives. This would better suit the mid-class Coach customer.

· Product expansion for men’s. Men’s, luggage and outerwear only account for approximately 5% of sales. They currently have two stores devoted to men, but branching out with more products would make this market expand.

· Continue global expansion (growing consumer market in Middle East, Australia, and Mexico.

Threats

· Strong competition since their target market is so broad. Brands from luxury Italian designers (Prada, Gucci) are threats, to lower brands like Dooney & Burke, Michael Kors and Kate Spade.

· Counterfeit Coach is extremely detrimental to company brand and sales.

· Quick change of trends (can be seen as weakness or strength)

· Those seeking true luxury might view Coach as inferior to other brands, due to discounts, price point, and easy availability of product. (compared with Louis Vuitton)

COMPETITIVE ADVANTAGE

Coach is a retailer that clearly sets itself apart from many other brands and companies. Over the past 70 years, coach has transformed their profits without losing sight of their classic style. One of their major attributes and competitive advantages is their brand equity. They have established brand equity because they have always promised their customers quality leather and that’s what they have always given. It began when the company began: 1960. Cahn, the original owner was working in the loft workshop making leather goods. Cahn was inspired by a simple baseball glove. He noticed that even after overuse of the glove, the leather became softer and supple. Cahn replicated this quality leather by developing a process of making leather that made it age well, kept it strong, flexible, and soft. He also made it absorbed rich colored dyes to make for bold leather bags. Their first purses were made of durable cowhide, where the grain of leather could still be seen. Compared to most of the low-margin handbags being designed during this time, Coach was a brand making a statement. Their innovation of classic style and visible quality marked the entrance of Coach into the women’s handbag market. Once the business got going, Coach remained true to their classic and traditional style and didn’t follow fast moving trends. They produced solid colored, basic bags of genuine leather. Once they gained respect in the industry, their high-priced bags developed a positive reputation and a certain prestige. However, during the 1960s, trends began to change rapidly with all that was going on in the world of women, and Coach did accommodate. They developed bags that included statement pieces and were much trendier than their original basic bags. In 1969 they began developing styled bags such as the “shimmy” bag and “bucket” bag. Today, Coach has multiple classic styles, colors and structured bags. Each season, new designs on these same structures are created and made to compliment the fashion-forward classic style. Their innovations have caused many to imitate their styles. These copyright infringements caused Coach to sue many companies, such as Anne Taylor in 1990, and Target in 2009. It has been said that imitation is the greatest form of flattery; therefore companies are aware that Coach is a leader in its market segment.

Another major competitive advantage of Coach is their in-depth customer analysis processes. These processes allow Coach to be 5 steps ahead of the competition, which has clearly been shown by their increase in sales even during tough times. In 2000, Coach was seeing drop in sales and profits. This caused the president and CEO to really work together to devise a plan to change their decline in sales to an increase. Frankfort stated that “"When everything is going your way, you can tell yourself you're a genius…But you're a fool if you believe it. I have every confidence that we'll continue to be as relevant and strong as ever, that our strategy will win out.” Frankfort’s attitude is what was needed to keep the brand alive and to succeed. He knew that the customer was the key component to the business. To figure out why they were losing customers and not gaining new ones, they took an in-depth look at who was buying what, and where. The company did this through technological advancements and research methods. They conducted more than 40,000 one-on-one customer interviews, and over 500 customer telephone interviews. They also conducted a number of market experiments, used competitive analyses, prototype studies, and in-store product tests. Their customer database includes over 9.7 million households. Frankfort visits individual Coach stores each and every week to see what is going on in stores, who the customer is, and what improvements can be made. He even asks customers in-store, how their experience has been. Through all these methods, Coach really gains a grasp on who the customer is and what they want. This allows stores to tailor their merchandise to fit the demographics of their customer at their location. For example, in Manhattan, the highest end and trendiest products will be sold, while in the Midwest, they may not choose to place those items in-store. Coach’s strategies related to customers and their business helps increase profits, satisfy the customer, save money, and be the success they have desired since established in 1941.

PREDICTIONS

Coach has succeeded in its market and expanded tremendously over the past 70 years. I feel that, especially with the CEO and President’s attitude, they will continue to stay 5 steps ahead, and if they are not, they will do what they need to figure out how to get back there. I think continuing to expand globally is a very important opportunity that Coach should take advantage of. Placing more stores in Asian markets will be sure to increase sales. Focusing even stronger on the men’s market, especially in bigger cities, will be an important factor. They need to do more men’s advertising to get it out there. A big opportunity would be to create off-price stores, that carry new items, (not mark downs) but are segmented at lower price-points. I think this would please many customers. Even creating POPPY stores that are segmented more for their younger market would be an excellent idea. They should create a “create-your-own” look, for their website, since their shoes, clothing, accessories, and bags are all created to complement each other each season. Emerging threats, especially for their partnership with department stores, are “exclusive” lines that are being showcased and featured at cheaper prices. These exclusive lines are often high-end designers that create exclusive lines for a season. (H&M had Jimmy Choo create a much cheaper line for them). This reaches a large part of their target market: shoppers wanting high quality and brand name without breaking the bank. Coach could possibly do their own “exclusive” line, with a designer one season, and have it featured only in department stores. I think Coach should continue with their in-depth customer research and database collection, and not feel that they know their market, since it is always changing in today’s world.

APPENDI

COACH STORE 595 MADISON AVENUE