Coach Inc SWOT Analysis - Case Study Example

Coach Inc SWOT Analysis Coach Inc SWOT analysis Introduction Coach Inc strategy was to create ‘accessible’ luxury market in ladies handbags and attained an annual growth rate of 20 percent between 2000 and 2011 (Gamble & Eastburn, p 287). In 2012, the company product portfolio included both men’s and women bags, business cases, leather apparel, footwear, jewelry, watches, fragrances and travel bags. The high growth was facilitated by focusing on quality, style and competitive pricing that enabled the company to attract both middle-income and high end clients. The 2012 strategic priorities entailed increasing global distribution and improving revenues from same-stores. The company aimed at attaining the strategic priorities through increasing market share in North America through opening new distribution outlets and increasing the products targeted towards men. The company would also increase the online sales and raise brand awareness in markets with low penetration such as South America (Gamble & Eastburn, p 289). Strengths One of the strengths is the widespread distribution network that includes wholesale retailers and factory stores. The company has approximately 970 wholesale locations in North American market, 169 retail outlets in Japan, 66 stores in China and other international wholesale outlets in 18 countries. The effective distribution network is essential in creating customer efficiency, enhancing brand awareness and penetrating new markets thus will enable the company to attain higher sales volumes in the future. Currently, Coach has a wide geographic coverage and strong global distribution capabilities due to partnering with wholesale retailers in different countries (Gamble & Eastburn, p 297). The company has a reputation for quality and differentiated products that meet the current product trends and consumer desires. The company uses the highest-quality leathers and has established quality sourcing agreements with the overseas third parties (Gamble & Eastburn, 2014). The company has excellent customer service capabilities that include wide range of direct marketing activities such as websites, catalogs, and brochures. The company is capable of collecting and storing current and potential customer information in order to understand the changing customer tastes and respond effectively through offering products that meet the changing customer expectations. For instance, Coach increased the customer contacts by 52 percent in 2011 to over 625 million contacts (Gamble & Eastburn, 2014). Coach has good supply chain management capabilities that ensure high quality finished products. Coach Inc has a flexible sourcing since the vendors in China account for 85 percent of product requirements and those in Vietnam and India product the remaining 15 percent of Coach Inc product requirements. The broad-based manufacturing strategy incorporates quality assurance offices in South Korea and Hong Kong. The company is capable of attaining cost advantages and faster leads times due to the flexible outsourcing strategy (Gamble & Eastburn, 2014). Weaknesses Coach Inc is experiencing a weak balance sheet, declining free cash flow position and increase in the operating costs. The market capitalization of the company has declined significantly due to declining in the stock value while the year-on-year growth of the company has been declining at an average of 10 percent for the last two years. Although the decline in cash flow position can be attributed to aggressive expansion plans, it is essential to note that the gross profit margin declined in the current year thus reflecting an increase in the cost of sales and possible decline in pricing due to discounts to customers (Gamble & Eastburn, 2014). The company cannot attract new capital easily since the total debt is high. The debt increased by 140 percent between June 2013 and June 2014 thus reflecting high leverage position of the company and possibility of further decline in stock prices of the company (Gamble & Eastburn, 2014). The company relies on the traditional US market for its revenues. In this case, the North American market is highly concentrated due to presence of both US and European brands that have ventured in the ‘accessible’ luxury market (Gamble & Eastburn, 2014). Another weakness is the perception of low quality since all the products marketed by the company were manufactured by third party suppliers in Asia under licensing agreements. The branded footwear, eyewear and watches were also available through licensing agreements. The discounted models and special lines that involve 15 to 50 percent discounts may not be sustainable during periods of declining volume of sales. The discounts are high and may create a negative perception about the quality of the product especially for the wealthy and high-end luxury customers(Gamble & Eastburn, 2014). Opportunities The China and South American markets offers high growth opportunities for the luxury brands and thus Coach Inc should aim at providing quality and stylish products in those emerging markets in order to build brand loyalty. China was the third largest luxury market in 2010 and the economy is characterized by increasing consumer disposable incomes and higher standards of living (Gamble & Eastburn, 2014). Coach has an opportunity of increasing its global market presence and sales volumes through use of modern technologies. The company can attain excellent brand awareness at much lower costs through use of social media advertisement platforms and using the website to appeal to the international customers (Gamble & Eastburn, 2014). Threats One of the largest threats is the stiff competition from global brands such as Gucci, Dolce & Gabbana and Ferragamo. The leading brands in the traditional luxury segment such as Calvin Klein and Prada have broadened their offering in order to compete in the ‘accessible’ luxury market segment thus providing stiff competition due to their high brand awareness and customer loyalty (Gamble & Eastburn, 2014). The second threat facing Coach Inc is counterfeiting since global data indicates that 9 percent of all goods sold across the world are counterfeits. About two third of the counterfeits are produced and marketed in China and Asian markets due to weak anti-counterfeit enforcement framework and thus Coach Inc risks losing sales revenues to counterfeits in that market (Gamble & Eastburn, 2014). Another threat facing Coach Inc is the adverse economic environment across the North American market that has led to decline in consumer spending and forced the company to offer discounts in order to attract customers. The economy is characterized by high unemployment rates, high interest rates due to recent financial and economic meltdown and low economic growth and thus sales volumes may stagnate in the dominant US market (Gamble & Eastburn, 2014). Summary Strengths Weaknesses Opportunities Threats Excellent distribution network and capabilities Weak balance sheet, declining free cash flow position and high debt Expansion in China, South America and other emerging markets Stiff competition Differentiated products on quality and cost Overreliance on traditional US market New media technologies for advertisement and brand awareness Counterfeiting threat Excellent customer service relationships management capabilities Perception of low quality due to outsourcing manufacturing from Asia and China Adverse economic environment Good supply chain management capabilities Unsustainable discount pricing policy Reference: Gamble, J.C & Eastburn, R.W. (2014).’Coach Inc. in 2012: its strategy in the ‘accessible’ luxury goods market’, Connect case study. Pp 287-297. Read More