In 1941, Coach was first established as a small family run premium leather goods manufacturing business, which was seen as a premium brand with superior leather goods. In 1980, Coach opened its retail store and in 1985 Coach was sold to Sara Lee. Coach then began to experience paid expansion and growth including accessories, luggage, and brief cases into the product line. Today Coach is known for being one of the leading luxury accessories brand in the US and internationally. Some of these products now include purses, footwear, jewelry, travel bags, fragrances, wallets, and brief cases to name a few. Below will be information on where Coach Incorporated needs to gain or lose access using Porters Five Forces model. Porters Five Forces include the following forces that shape an industry according to the model and Michael Porter: New Entrants, Competitive Rivalry within the Industry, Bargaining Power of Buyers, Bargaining Power of Suppliers, and Threat of Substitute Products or Services.
New Entrants will be discussed first and it is not a category that has the most intensity, yet there still is some. I would say new market entrants is at a medium intensity but Coach would have a distinct advantage over any new brand simply for being an establish brand already. This would be a huge barrier of entry for a new luxury brand to overcome in the type of market Coach demands. Brand recognition and brand loyalty are among the main factors that drive middle to high-income earners towards luxury brands such as coach, which a new company would have to think greatly about before jumping into the fire. In addition, another barrier would be having capital expenditure for marketing and floor space. However, creating a company over the internet has low barriers and new players can pop up in this sector selling apparel, accessories, footwear and other items.
Next we will dip into Competitive Rivalry within the Industry, which would be the highest intensity as Coach has plenty of competition existing in their industry. In North America alone Coach faces new upcoming brands growing at a rapid rate. Some of these companies are Michael Kors, Tony Burch and Kate Spade recording growth way above Coach nearly all outpace coach by 50%. Coach owns a large portion of the handbag market share in the US have just above a quarter of the market. This is not necessarily the number they would like to see but competing in a cluttered market where there are many brands to choose from this is not that bad of a number.
They compete with the likes of Louis Vuitton, Gucci, Longchamp, Vera Bradley, Fossil, Chanel, Guess, Marc Jacobs, Juicy Couture, etc. I believe the rising competition in the handbags and accessories market is a concern for Coach looking forward in terms of stock. The sales have declined in stores and this is a trend that I feel will continue. Another form of competition Coach is up against is increased private label offerings, which also increase competition.
Now moving on to Bargaining Power of Buyers. The intensity here would be medium as Coach sells through both the direct to consumer and wholesale channels. Coach stores and e-commerce accounted for nearly 90% of sales. Since wholesale customers account for only about 10% of sales this leads me to the conclusion that their bargaining power is extremely limited. The bargaining power of the end consumer would be moderate. This conclusion came from the thought that Coach positioned itself as an affordable luxury brand and enjoys high brand recognition due to its high quality products. However, many consumers are becoming increasingly more aware and gravitating towards new upcoming brands such as Michael Kors. Therefore, Coach is losing some of its exclusive appeal, which was a draw of the brand in the past. I feel the bargaining power will remain moderate as well because Coach’s efforts to reignite its band image will be offset by the rising competition in the market.
Now up is the Bargaining Power of Suppliers and the intensity in this category would be low. Coach does not manufacture its own product instead they rely on many different manufactures located in various places throughout the world. I feel Coach manages this well as only one supplier contributes substantially more than the rest and this may be the only supplier with a slight bargain power. This is concluded from what would involve high switching cost to replace this supplier and match production. However, that is the only supplier with any pull and hence the conclusion of bargaining power being limited. As with manufacturing nearly everything all suppliers share increased cost of the raw materials and higher wages for employees. Hence, Coach sources its materials from various geographic regions to limit the impact of inflation.
Last but certainly not least is the Threat of Substitute Products or Services, which is low to medium intensity. Coach’s products are purchased by middle to high-income groups and the consumers in this group like to wear high-end luxury brands. The demand for products that Coach and other companies will remain but the options will continue to grow as well. A threat here is counterfeit products, which is rather large threat in a sense that it is easy to counterfeit the product and may diminish the value of an item or brand as a whole.
The quality of theses counterfeit items in a general sense has been improving over the years. However, the target market of Coach is not people shopping in Rodgers Flea Market or other places it like it. Is it a threat sure but not as big as most would think. In addition, the other substitute products would be competing brands with similar products such as Coach, which is an increasing threat. With how Coach has positioned itself as a lower cost luxury brand it has somewhat limited this threat as well.