Metropolitan State University 499-53 Coach Case Appendix Analysis Summer 2015 Here are the main points I will be looking for in your appendixes, I have looked yours over and the overall format is good. Make sure you have addressed these key points in each appendix and you should receive full credit. If you have not addressed these points, be sure to include them in your appendix and your overall analysis: Macro Environment Analysis Luxury market has been growing 7 to 8 % annually Rising incomes in developing economies There was an economic slowdown in 2007 and 2008 which impacted luxury sale items There is a growing desire for luxury goods in the middle income consumer market There are more and more two income families and they like to reward themselves There has been an increasing trend in counterfeit goods (2/3 produced in China) There needs to be better piracy enforcement laws Porters Five Forces Analysis Substitute products: Medium to High threat Bargaining power of buyers: Medium threat Risk of entry by potential competitors: Medium threat Bargaining power of suppliers: Low threat Rivalry : Very High Threat Value Chain Strengths: Flexible sourcing and procurement contracts, access to highest quality leather Off shore production of a high quality product at a low cost Selection of sites for locations is good Good customer communication Good market research; monthly product launches which increase traffic in stores Good leveraging of brand name; especially through licensing Strong brand recognition In house architect group for designing retail stores Will refurbish or replace damaged handbags Special request service; deliver to home if not available in store Formal design process based on market research Metropolitan State University 499-53 Coach Case Appendix Analysis Summer 2015 Regular customer service training Strong balance sheet and good fiscal management International offices to control quality Weaknesses: Small European presence Penetration of men's market is small Currently not pursuing knockoffs aggressively Financial Ratio Analysis If I see major issues with your ratio calculations I will get back to you within a day of you turning in your final case and we can discuss getting the major issues corrected. If there are minor calculations I will ignore them if you have a good overall summary written that makes sense based on the financial performance data provided in the case. SWOT I will be looking to see that your SWOT analysis is consistent with the analysis of your appendixes. I will be looking for strengths and weaknesses to be consistent with what you have provided on the Value Chain and the Financial Ratio analysis. I will be looking for opportunities and threats consistent with your Macro Environment and Porters Five Forces analysis. Good luck with writing your narrative, if I can provide additional assistance on the narrative please reach out to me and we can work through your issues or questions. I am available for a phone conference or a face to face session on the weekdays in the evenings and I can also be available on Sunday August 2nd for either. Professor Sjoquist 651-276-4941 RUNNING HEAD: COACH INC. Coach Inc. COACH INC. 2 Contents Situational analysis.....................................................................................................................3 Macro environment analysis......................................................................................................4 Financial analysis.......................................................................................................................4 Industry forces............................................................................................................................5 SWOT analysis...........................................................................................................................5 Strengths.................................................................................................................................6 Weaknesses.............................................................................................................................6 Opportunities..........................................................................................................................7 Coach threats..........................................................................................................................7 Appendices.................................................................................................................................7 Appendix A.............................................................................................................................7 Macro environmental analysis............................................................................................7 Appendix B...........................................................................................................................11 Financial analysis..............................................................................................................11 Appendix C...........................................................................................................................13 Porter five forces...............................................................................................................13 SWOT Analysis........................................................................................................................14 Value Chain Analysis...............................................................................................................16 References................................................................................................................................21 COACH INC. 3 Situational analysis Coach was established in 1941 when Miles Cahn, a New York City leather artisan, started building ladies handbags. The handbags made by Cahn and his family in their SoHo loft were easy in style and extremely flexible to wear and tear. The Coach's class styling and strong building proved famous with discriminating consumers and the beginning line company of 12 unlined leather bags readily grew a loyal following. Over the next 40 years, coach was capable to develop at the constant rate by fixing the prices about 50 percent lower than those of more luxurious brands, with the retailers establishing the accounts and adding latest models like Bloomingdale's and Saks fifth Avenue. Coach Handbags and leather accessories are sold by the Company that owned the stores, disclosed by the Cahn family. After 44 years of the family management, Coach was sold to diversified food and consumer goods producer, Sara Lee. The turnaround plan of Frankfort also involved a re-plan of the flagship of company stores and on the new patterns of Coach the company should to complement. The previous dark stores, interiors of wood panelled and alry ambiance are avoided by Frankfort. The presentation of the factory stores are improved by the company. Model for testing, discontinued models and special lines are taken by these stores that sold at the discounts ranging from 15 percent to 50 parents. The outsourcing company policy production is built the possible types of discounts to 40 suppliers in the 15 countries. Coach manage the sizeable pricing benefit relative to other luxury handbag brands permitted by the outsourcing contracts in its complete price stores ranged from $200 to $ 500. This price range was below the $700 to $800 initial price charged by the other comfort brands. Who would not basically suppose luxury brands, the attractive pricing of Coach enabled it to request to consumers, while for the satisfaction of the conventional comfort consumers, the quality and styling of its products were enough. The quality of Coach, styling and value mix COACH INC. 4 was so strong that rich women in the US ranked Coach ahead of more costly luxury brands like Hernes and Fendi wear by the women that is found in the Daily Survey of women wear. By 2000, the alterations to the strategy of Coach and functions permitted the brand to make a sizeable lead in the \"accessible luxury\" segment of the leather handbags and accessories industry and it is built by the solid performer in business named as Sara Lee. With the turnaround fruitfully implemented, Sara Lee management elected to spin off Coach via an IPO in October 2007 by implementing the turnaround successfully as part of the rebuilding initiative designed to concentrate on the food and beverages. Macro environment analysis Coach Inc. is specialized in the production of the premium lifestyle accessories and is one of the more identifiable luxury brands in both the United States and Japan. At the relatively best prices, the company should be providing the innovative and fashionable products. The products lines of Coach contain the handbags, accessories and other products involving the footwear, jewellery etc. The quality and value is related with the brand of Coach because of the expertise of company in design and the attractive prices are emphasized by the company to attract the customers. For the handbags and accessories, the Coach is the market share leader in the US. Financial analysis The income statement of Coach for fiscal 2009 shows the complete trends, which involves June 30, 2007 through June 30, 2011, taking place in the consumer optional sector. Because of the store expansion like 33 North American stores were added, 9 new factory outlet stores increases the slight sales by 1.6% greatly. This enhance in sales coincided with the severe 20% decrement in net income. The enhancement in sales is contradicting with this increment with such a large drop in earnings shows an important decrease in net margins. COACH INC. 5 The company also identifies the factory stores enhancing impact on its sales in its current earning calls. However, the sales of factory stores versus other channels are not break down s in its 10K or anywhere. Coach also has very powerful cash flow statement. The job of the company is point out by the cash inflows function which was $800,000 producing cash from its operations. Capital expenditures and stock repurchases are the primary outflows of the company. On its upcoming prospects the company is very optimistic is pointed out by these outflows and is willing to spend large amounts on both expanding along with giving the returns on the shareholders on their investments. In conclusion, the income statement of Coach shows lower margins and reducing the similar store sales while the rise in complete sales is supported by the expansion. The most frugal consumer willing to buy merchandise of last year is shifted by the demographic of the Coach at the lowest price point. Industry forces Coach Inc is the leading American marketer of the luxury handbags and other fashion garnishing. For example, Coach Sales of comparable stores fall off around 1.7% in Quarter 4 2013 in weak North American outcomes and the industry forces of the company are analyses with the help of the porter five forces model. Porter five force models is analysed through the competitive rivalry within the industry, customers' bargaining power, threat of new entrants' threats, bargaining power of suppliers' bargaining power and threat of substitute products. SWOT analysis Coach Inc. is an American leather goods company mainly known for ladies' and men's handbags. Coach Inc is the designer, producer and marketer of the prestige line of handbags COACH INC. 6 and accessories. In unchanging, classic styles, the company should sell the hard purses to build its reputation and it remains one of the best known leather brands in the US. SWOT analysis is very important for analysing both the internal as well and external examination of an organization. Strength and weakness which are in internal behaviour of the organization are reviewed in the SWOT analysis along with this opportunities and treat to the organization are also observed. The strategies followed by an organization are the quick observation and are made by the SWOT analysis. To recover and remove the defects, the SWOT analysis plays the important role for the organization. Strengths 1. It is on the top organization of USA in the area of gifts. 2. Coach is one of the major competitors in the area of luxury and leather products given in the latest and modern style of the products. 3. The company takes the price very low as contrast to their competitors the prices the Coach is almost 50% or more less than its competitor. 4. Every month the company manufactures latest and new design of handbags 5. Coach manages high level of customer services for the advantage and simple access to the customers. Weaknesses 1. The opening keep complete price for the products although the price is kept low. 2. Like the opening stores are enhancing day by day thus it cause brand name is decreased. 3. The company has very less sale on the accessories of men side which is stored almost 2%. Opportunities 1. Coach has many opportunities like the company is the solely concentrating in US and Japan and the needs of luxury and leather is enhancing across the world market thus the company can collaborate the global market like India and china. 7 COACH INC. 2. As in the market of Australia, the company marketing its product thus it can aid in enhancing the profit and money of the user across the market. 3. Coach can also enhance its online marketing which is the more needing marketing in which is the more needing marketing in the resent life. 4. Coach can design best plan in the need of the caught new customer. Coach threats 1. Like there are many competitors of the company like Italian and French designer with the brand name like Gucci, Dolac and Prada etc so the logical price should be provided by the company, thus it can handle its position. 2. The company has to begin the marketing in the global market and with the price so that its customer may raise otherwise the competitors will get the opportunity and thus 3. it can influence the company very much. The economy drop in USA also influences the profit as well as the quantity of the products given by the organization. Appendices Appendix A Macro environmental analysis Description of the trend Pos. or Neg. Description of how this trend might (what is actually increasing Effect affect average industry profitability or decreasing) Economic Conditions: 1. The businesses are This trend Efficient advertising entices the flourishing when the should have the working people reward themselves for economic conditions positive effect. are good. 2. In 2005 the their hard work by purchasing the comfort product. luxury goods market was good Coach is aware of the purchasing trends of women when it comes to 8 COACH INC. and the high projections handbags. The company seemed at the were built for 2006. market of the buyer and check out the Coach and others got demand of the buyer. It then set out to set to cash in on this capture market share by devising and sizeable market of $112 growing the market strategy. billion of the projected sales. 3. The growth is attached to the development in spending habits because of the increase in the incomes in Europe, Eastern Asia and elsewhere. Sociocultural and Demographic Forces: 1. In any type of business, It should have People in the US, Europe and Asia is people and the spread negative greatly fashion-awareness and has a of people affect the impact. lot of disposable income to spend on sales and profits of the the comfort goods. business. There more are people, proportionally there are more buyers; more buyers' equals to the more money and larger The luxury goods market development is exceptional; most of the women worldwide need luxury good like handbags. Across the buying power was $105 billion worldwide and 9 COACH INC. profits. projected sales were place at $112 for 2006, so to get more money Coach had to compete than its good share of this money. They already verified to be the successful company and had to become better. Technological Forces: 1. The share of Coach This should Lew Frankfort stepped in and began dropped in 1990 due to have the with the innovation and technological the product lag- they positive impact changes in 1996. These innovations were not too on competitive anymore. the are new products, designs and styles. company. Coach surveyed the people and got to 2. Their rivals like Gucci, understand what was people needed- Prada and others had after new product innovation, new the good and larger stores grew and old ones revamped. following of customers. Legal / Regulatory Factors: 1. The government has This numerous rules should The company working fairly and and have regulations that have an positive the sticking to the laws and rules. Laws effect and effect on the markets on and doing Businesses business. organization. rules the companies can from also secure unfair the trade. However, rules and laws become hard function when companies expand their business inside these laws. The across the world and they require law cover things like taking note. Thus Coach has to be tariffs, updated in Europe and in Asia-Japan importation, 10 COACH INC. exports regarding industries. and laws and China. Coach is successful in particular Coach these markets by being pro-active. is aware about these laws and requires to work inside these frameworks. Environmental Forces: 1. Coach requires being aware This has the It is significant to have reasonable of its external competitive positive effect. complete environment as well and the competitive environment as well as internal of the market forces that are and will company for develop and apply affect the shape of the luxury goods the market, called handbags. capabilities successful business knowledge about the strategy. In the success of the Coach, the brand image is the greatest factor. Since 1941, Coach is famous like the brand for the good and durable leather bag. not solely in the US but also in Asia, the leather bags of Coach are sells well. They have also fruitfully added on the accessories and other products, in the form of the luggage, wallets, gloves and more. New products keep the competitive edge and the coach felt that innovation and good also have the competitive edge. The new innovative lines of Coach are the causes for the success. It can stand its own against other leading brands like Gucci ad Prada and others. It trials products, utilize the feedback and then enter it on the actual market with success. Welldesigned, crafted and marketed accessories are used by the Coach Inc. 11 COACH INC. Appendix B Financial analysis from 2007-2011 2011 2010 2009 2008 2007 73.00 71.90 75.68 77.44 31.38 31.88 30.09 36.06 38.03 profit 31.29 31.93 30.25 37.57 39.61 Margin Analysis Gross profit 72.71 margin Operating profit margin Net margin Profitability ratios Return on $2635,116 $2467,115 on $2635,116 $2467,115 Assets Return Equity Liquidity Ratio Current 2.338 2.735 -62 million 104 million Ratio Working Capital Leverage Long Debt Assets Term 48,992 to 18,212 12 COACH INC. Long Term 23,380 Debt 24,159 to Equity Activity Ratios Inventory 2.89 2.83 126.24 129.19 1 years 1 years turnover Days Inventory Average collection period Appendix C Porter five forces Leather handbags Medium threat to focal industry Suppliers comes from Bargaining power of suppliers: international dimensions Low threat to focal industry profitability Rivalry among established companies: Coach does not make its own products. Rather, it based on the High threat to focal industry manufacturers situated in profitability different countries like China, Vietnam and US. There is large number of No other individual supplier competitors in the rapid given more than 10% f the total handbag manufacturing units of Coach in fiscal 2013. company. Hence there bargaining power is Customer move from one restricted. to another one depend on We believe the enhanced costs of their daily requirements. the raw material and labour are typically shared by the suppliers with their buyers. Women and Men Bargaining power of buyers: Low threat to focal industry profitability Coach sells through both, the direct-to-customer channel and the wholesale channel. Since the wholesale customers responsible for only around 10% of the total sales, we believe their bargaining power is restricted. 13 COACH INC. Risk of entry by potential competitors: To begin a new brand, important capital expenditure is needed for the marketing and floor space. Brand identification like Coach. A new player would find it hard to attain this condition without making certain investments. The competitive rivalry inside the industry is the most potent risk for Coach. The developing popularity of fashion in future companies like Michael Kors is impacting the need for the product of Coach. The capability of retailer to manage and increase its North American market share will be the major factor affecting its stockprice movement in the future. SWOT Analysis Strength 1. 2. 3. 4. powerful brand equity powerful financial performance multi-channel retail network Beating competitors price by 50% or more 5. High level of customer service 6. Outsourcing to cut cost and manage the low price External Opportunities Weaknesses 1. High level of inventor 2. Geographic focus 3. Products basically inaccessible to most of the consumer segments 4. Factory outlet reserves outperforming full-priced store 5. The accessories of men only responsible for 2% of sales 6. Luggage only responsible for 1% of sales. External Threats 14 COACH INC. 1. Latest store opening 2. Product expansion 3. Developing needs of luxury goods in emerging global markets. 4. Enhanced wealth of consumers in global markets of Asia, Middle East and Mexico. 1. 2. 3. 4. 5. Powerful competition Counterfeit goods Slowdown in consumer spending Changes in the fashion trends Counterfeiting of the luxury merchandise, totalling $500 billion worth of goods sold in countries across the world in 2006. 15 COACH INC. Value Chain Analysis Fill out the following chart, and then provide a summary Decreasin Increasing as described below the chart. g Costs: Value (Efficiency (E), Innovatio n (I) Criteria to for the Sustainabl customer e (p. 105): Competiti ve Quality Advantag (Q), Customer e Responsiv (see pp 90- eness 91 (CR), for or explanatio Innovative n) ness ( I) Valuable (V), Rare (R), Inimitable (I), Non- Substituta ble (NS) Strengths in Primary Activities Supply Chain Management: Coach uses the centralized services for making the X handbags and other accessories. O X 16 COACH INC. Operations: Coach functions are well developed in the US regions X O O O O X o O O containing of 1541 franchise locations spanning across the world wide. Distribution: Coach sources manufacturing elements and delivery of the O manufacturing from the single supplier and delivery service to increase the distribution effectiveness. Sales and Marketing: Coach is efficient in utilizing a pull marketing strategy X because of the quality of their handbags and other services. Customer Service (after sales service): Coach scored highest level in the customer service. It O ranked in the top Companies of the US. Strengths in Support Activities Decreasi Increasin ng Costs: g (Efficienc y (E), Innovatio n (I) Criteria Value for to the Sustaina customer ble (p. 105): Competit Quality (Q), Custome ive Advanta ge r (see pp Responsi 90-91 for veness explanati 17 COACH INC. (CR), or on) Innovativ Valuable eness ( I) (V), Rare (R), Inimitabl e (I), NonSubstitut able (NS) Product R&D, Technology, and Systems Development: Analytics software is superior to the competitors in O O O X x O x recommending/sourcing potential hot spots for the latest location. One Coach location may not importantly cannibalize the sales which will helps to ensure that. Human Resources Management: Employee training and other manufacturing X educational certification assistance is given by Coach corporate. General Administration: In contradict with price and service speed, Coach O gives a higher-quality experience than most other competitor in the same class. 18 COACH INC. Weaknesses Decreases Value? Increases Costs? (list one) Primary Activities Supply Chain Management: Operations: Increase costs Distribution: Increase costs Sales and Marketing:: Increase costs Customer Service: Increase costs Support Activities Product R&D, Technology, and Systems Development:: Decrease value Human Resources Management: Increase value General Administration: Decrease value COACH INC. 19 References Adam. (2011). Coach, Inc. SWOT Analysis. Retrieved from www.freeswotanalysis.com: http://www.freeswotanalysis.com/manufacturing-industry-swot-analysis/345-coach-inc-swotanalysis.html Coach Current Ratio. (2015, July). Retrieved from ycharts.com: https://ycharts.com/companies/COH/current_ratio Coach Inc COH. (n.d.). Retrieved from financials.morningstar.com: http://financials.morningstar.com/ratios/r.html?t=COH Coach Inc (NYSE:COH). (2015). Retrieved from www.gurufocus.com: http://www.gurufocus.com/term/Inventory/COH/Inventory/Coach%2BInc External Environment Of The Coach Company Marketing Essay. (n.d.). Retrieved from www.ukessays.com: http://www.ukessays.com/essays/marketing/external-environment-of-thecoach-company-marketing-essay.php John E. Gamble, R. W. (2012). CaochInc. in 2012: its strategy in the "accessible Luxury goods markets. S, A. (2010). SWOT ANALYSIS OF COACH.INC. Retrieved from www.managementparadise.com: http://www.managementparadise.com/article/842/swot-analysis-of-coach-inc Team, r. (2013). Coach Through The Lens Of Porter Five Forces. Retrieved from ww.trefis.com: http://www.trefis.com/stock/coh/articles/205735/coach-through-the-lens-of-porter-fiveforces/2013-09-13 Thompson, A. (n.d.). Crafting and executing strategy: The quest for competitive advantage : Concepts and cases(Nineteenth ed.). COACH INC. 20