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Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 1 of 8) Coach Takes on China: Leveraging Distribution to Solve Unique Challenges Case Summary Coach Inc., the U.S. based luxury leather goods and accessories manufacturer, owes its success to the "affordable luxury" positioning supported by large-scale distribution. Lower price points for quality goods differentiate Coach from competitors like Louis Vuitton while a wide variety of simultaneous distribution channels tailored to individual customer segments allow them to fully infiltrate a market without compromising the Coach brand. As Coach's growth in the United States has stagnated due to market saturation, the company has attempted expansion on a global scale, beginning with the lucrative and fast-growing Asian markets. After a spectacular success in Japan, Coach faces unique challenges in China: inconsistent brand perception, trouble staffing flagship stores due to rapid expansion, globe-trotting shoppers and more. Can the company tailor its distribution strategies to support the brand's adoption by the Chinese, or will China bring a halt to Coach's initial success in Asian markets? In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort said: "We don't know what China will be, but we can tell you we only have 3% market share and 4% brand awareness. Louis Vuitton has over 30% market share. The [handbag and women's accessories] market in China, Hong Kong and Macau is about $1.2 billion today, excluding Taiwan. If we are able to replicate what we did in Japan, the business will double in the next four or five years." History of Coach Coach, Inc. is a luxury leather goods and accessories manufacturer that was founded in the United States in 1941. Coach has positioned its brand as "affordable luxury", allowing the company to target both upper-class big spenders and the more price-sensitive middle class hungry for signifiers of affluence within the reach of their comparatively slimmer wallets. Today, the company boasts a strong global brand and growing international sales with over 800 Coach stores located in the United States and Asia alone, with additional revenue coming in from indirect channels. Coach's Global Distribution Strategy & Operations Coach's distribution model is composed of two main segments, Direct-to-Consumer and Indirect. Within these segments, a mix of channels is blended and balanced to achieve the perfect mix for each market. While these outlets vary slightly in different countries, the customer segmentation and purposes of each remain fairly consistent. Generally, the direct channel is composed of retail stores, factory stores and e-commerce. Retail or flagship stores offer a superior shopping experience that enhances the Coach brand and targets higher-income, older customers. Factory stores are a great way to move discontinued or discounted products as well as exclusives and they target customers who would otherwise not buy due to price-point (prices 10 - 50% lower than normal list prices). E-commerce sites serve as a communications tool to showcase the brand, drive traffic to Coach stores and process direct-to-consumer orders. The indirect channel is composed of wholesale stores, free-standing units, department stores and others. These outlets vary by country depending on what is most appropriate. They target customers who prefer to shop in local or department stores. The product mix is developed by Coach to match consumer needs in this market and is different from what customers would find in a Coach flagship store. Indirect distribution can be an effective entry technique when expanding globally, and This case was prepared by Kang Liu, Helena Mutak, and Xiaoying Wei of the Fox School of Business at Temple University under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2013). G A (((. 97% U U.S. Wed 5:43 AM Search E III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 2 of 8) Coach has used it with success in markets such as Japan. The indirect channel also includes licensing deals, which are a very small percentage of sales and limited to accessories only. Overall, 11% of Coach's net sales come from indirect channels with the remaining 89% resulting from direct sales. Extensive distribution can compromise the luxury image of a brand, but Coach protects brand integrity by placing factory stores a set distance away from the nearest flagship location. Only Coach's flagship stores sell the latest merchandise, and sales are only allowed at factory locations for older products. In addition, Coach does not allow its wholesalers or department stores to discount Coach merchandise. This approach allows the company to cater to multiple customer segments with different price points while retaining the image of exclusivity necessary to a global luxury brand. When paired with Coach's use of locally based distribution centers, global sourcing system and consistent branding, its distribution model has allowed the company to remain near the top of the luxury and handbag accessories market in the United States and Japan. Coach maintains three primary distribution centers: a directly-owned center in Jacksonville, Florida and two third-party owned distribution centers in Shanghai and Japan. These centers handle warehousing, stock replenishment and process direct to customer orders. For a more complete picture, Exhibit 1 shows Coach's current distribution, corporate, sourcing and product development facilities by square footage: Exhibit 1: Coach's Current Facilities (Image source: www.coach.com) Location Jacksonville, Florida. New York, New York. Carlstadt, New Jersey Tokyo, Japan Dongguan, China Shanghai, China Hong Kong Hong Kong Ho Chi Minh City, Vietnam Taipei City, Taiwan Hong Kong Singapore Seoul, South Korea Beijing, China Long An, Vietnam Chennai, India Luxembourg Use Distribution and consumer service Corporate, sourcing and product development Corporate and product development Coach Japan regional management Sourcing, quality control and product development Coach China regional management Sourcing and quality control Coach Hong Kong regional management Sourcing and quality control Coach Taiwan regional management Sourcing and quality control Coach Singapore regional management Sourcing Coach China regional management Sourcing and quality control Sourcing and quality control. Coach regional management Approximate Square Footage 850,000 433,000() 65,000 32,000 27,000 22,000 17,000 14,000 11,000 6,000 6,000 3,000 3,000 3,000 1,000 600 300 (1) Includes 250,000 square feet in Coach owned buildings. During fiscal 2009, Coach purchased its corporate headquarters building at 516 West 34th Street in New York City for $126.3 million. The Global Luxury Market: Targeting Asia The global luxury market is predicted to reach US$307 billion by 2015. Historically, North America and Europe have held a significant share of the market. In recent years overall share has been declining and growth rates have reversed. Exhibit 2 shows actual and forecasted spending by region over a 9-year period from 2006 - 2015: G A (((. 97% UA U.S. Wed 5:43 AM Search E III 0 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 3 of 8) Exhibit 2: Share of Global Expenditure on Luxury Branded Products Share of global expenditure on luxury branded products 26.8 22.4 Americas 20.6 Share of Global Sales % 2006 2011e 2015f 37.3 36.1 33.4 Europe 4.4 5.1 15.8 5.8 15.7 Middle East and Others 26.8 Japan 9.5 Asia Pacific excluding Japan 33.1 7.1 K (Image Source: Data Monitor: Global Luxury Retailing) With North American sales stagnating, Coach invested resources in global expansion, targeting Asia's rapid growth. The company chose Japan as its point of initial entry due to its already thriving luxury goods market before attempting expansion into China. Coach considered Japan's top 60% income group as its target market while they only see the top 20% income groups as their potential customers in the United States. Success in Japan: One Step Closer to China Coach entered the Japanese market in 1988 with a three stage expansion strategy: exclusive agreement with well-known department store Mitsukoshi, (1988-2001); joint venture with Sumitomo, one of the largest trading companies in Japan (2001-2005); and finally, wholly-owned subsidiary (2005-present). This traditional mode of entry allowed Coach to slowly but effectively grow its distribution network in Japan. As the variety and volume of distribution channels grew, Coach was able to target more consumers and meet unique cultural challenges. When Coach first entered Japan in 1988, the only place that Coach's products were available at was Mitsukoshi Department stores due to the exclusive distribution agreement between Coach and Mitsukoshi. It was a cost effective strategy in the beginning of its expansion in Japan. However, this agreement eventually became restrictive because Coach realized that it had difficulty reaching young consumers through Mitsukoshi. In 2001, Coach acquired PDC, a wholly owned subsidiary of Mitsukoshi, and started a joint venture with Sumitomo Corporation in 2001. After the acquisition of PDC, Mitsukoshi remained a key retailer for Coach even though the exclusive agreement had ended. Coach's new joint venture with Sumitomo allowed the company to develop many more channels to target different consumer segments. In 2005, Coach Japan Inc. became a 100% subsidiary of Coach, giving the company full control of its operation and distribution management. Today, Japanese customers can purchase different Coach products through many distribution channels and Coach is one of the top luxury brands in the country. Coach's slow, careful expansion in Japan taught the company effective A (((. 97% UA U.S. Wed 5:43 AM Search PS FACEAREER? III 10 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 4 of 8) growth techniques and set the stage for their aggressive entry into China. Coach Enters China 3rd "-party Buoyed by its ongoing success in Japan, Coach entered China in 2003 via a distributor, ImagineX Group. ImagineX Group is a prominent retail, brand management and distribution companies, and its website describes itself as having "unrivaled market coverage in Greater China." Unlike Coach's earlier exclusive partnership with Mitsukoshi in Japan, its agreement with Imagine X Group allowed it to open multiple locations across China, including several key stores located in Hong Kong, Beijing and Shanghai. Coach China operated through the ImagineX Group for six years until 2009, when Coach acquired all of its businesses in Hong Kong, Macau and mainland China. Following the acquisition, the ImagineX Group continued to provide Coach China with "support services in areas such as distribution, logistics, human resources, accounting, payroll and information systems... [allowing] the Coach team to focus on brand-building and direct management of the front end of the retail business where it directly touches the consumer." In 2010, to further support the growth in China and the region, Coach established a third-party owned Asian distribution center in Shanghai to better manage regional logistics while reducing costs. The Luxury Goods Market in China Potential luxury markets in China exist not only in first-tier cities like Beijing and Shanghai, but also in second- and third-tier cities. Growth in China's luxury market is based on the emergence of new consumers in these populations and they present a unique opportunity for growing market share. Exhibit 3 shows Potential Luxury Markets in China. Exhibit 3: Potential Luxury Markets in ina Employee Avg Wages (USD) Province Beijing Shanghai Jiangsu Zhejiang City Beijing Shanghai Nanjing Hangzhou Ningbo Guangzhou Shenzhen Jinan Qingdao Shenyang Dalian Chongqing Chengdu Fuzhou Xiamen Zhengzhou Shijiazhuang Tianjing Changsha Wuhan Anhui Hefei 5,962 Source: China Statistics Bureau and 2011 China Private Wealth Report [16]. Data as of 2010. RMB/USD=6.5897. Fujiang 17,348 6,368 Henan Hebei 5,218 14,214 1 Tianjing Hunan 10,577 5 Hubei 5 10,095 8,283 495 8 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Guangdong Shandong Liaoning Population GDP/Capita (10,000s) (USD) 17,028 18,445 12,311 13,101 13,648 20,233 55,952 9,824 Sichuan 1,258 1,412 632 689 574 806 260 604 764 720 586 3,303 1,149 646 180 963 989 985 652 837 11,260 10,581 13,348 3,641 7,331 7,338 9,967 10,907 7,403 7,401 6,598 8,270 7,657 5,744 5,737 6,358 6,770 5,367 5,858 5,282 # of cities with population 21 mil.) 6,113 4,974 4,774 8,037 5,818 5,964 1 1 12 5 11 13 4 1 11 4 HNWS (Wealth > RMB 10 mil.) 9 4 > 30000 > 30000 > 30000 >30000 >30000 [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] Exhibit 4 shows Coach's current penetration relative to top competitors in the luxury leather goods market by number of stores and cities entered per city tier: G A (((. 97% U U.S. Wed 5:43 AM Search SESETETUT III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 5 of 8) Exhibit 4: The Expansion of Luxury Retail Networks in China # of Cities Entered Tier Tier Tier 1 2 3 Category Brand Coach Gucci Hermes Lancel Loewe Tier Tier 1 2 # of Stores 21 12 10 9 5 9 8 5.3 1.6 1.0 Leather Goods Leather Goods 4.0 1.1 0.0 2.5 1.1 0.0 3.0 1.0 0.0 Leather Goods Leather Goods Leather Goods Leather Goods Leather Goods 2.5 1.4 0.0 2.3 1.2 0.0 Louis Vuitton Prada 2.0 1.3 0.0 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 42 30 11 15 10 Tier 3 32 13 3 0 0 0 0 0 0 4 3 4 3 2 4 4 26 27 10 15 7 26 10 3 0 0 0 0 0 # of Stores per city Tier Tier Tier 1 2 3 0 Coach's Ideal Customer In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort defined Coach's target customer segment: "In China, there's a luxury consumer that represents perhaps 0.05% of the population -- very small but with enormous purchasing power. That's not our primary target. Our target is the emerging middle class who have gone to university and are now getting 30% to 40% [pay] increases a year as engineers, doctors, bankers and lawyers. These women are trading up and investing in plasma TVs and travel and laptop computers and Coach bags. They are looking for ways to broaden their life, and Coach is one way." Coach's Current Distribution Channels in China Traditional Direct & Indirect Channels In 2012, Coach has 96 department store shop-in-shop locations as well as freestanding flagship, retail and factory stores and expects to open another 30 stores in the upcoming year, most of which will be located in second- and third-tier cities such as Urumchi and Nanning. The President and CEO of Coach China Jonathan Seliger stated that: "There are more than 120 cities in China with the population over 1 million. We hope to get closer to our customers in those cities. In order to stimulate consumption, we plan to open more stores in high traffic areas." E-commerce With more than 140 million e-commerce users in China, China's e-commerce market is predicted to be the world's largest in four years. In December 2011, on its 70th Anniversary, Coach opened its first official online store in China through Taobao Mall, a business-to-consumer e-commerce site under the Alibaba Group. The online store was only open for a one-month long trial period and was managed by a Coach customer service team. It offered 70th-anniversary branded limited edition accessories and leather goods which were exclusively available through the Taobao Mall online shop. Unfortunately, no sales resulted from the trial. On November 8, 2012, Coach announced the launch of its official online Chinese store, www.coach.cn. The website features many different Coach products targeted at the population of mainland China. Jonathon Seliger, CEO & President of Coach China, characterized the launch as "a major milestone in Coach's history, underlining our confidence and unswerving commitment to this growing market." Coach is using singer Leehom Wang, a New-York born Chinese celebrity, as the face of its new website. To increase the appeal of the new e-commerce platform, Coach features exclusive products that are only available online, such as bags signed by Wang. Coach is managing G A (((. 97% LA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 6 of 8) the site itself, but order fulfillment will be done by a third party. Coach's Challenges in China Today Brand Awareness Coach is experiencing numerous brand awareness issues stemming from entering China via a third party vendor. ImagineX was very profit focused with an already existing and diverse brand portfolio. ImagineX did not invest many resources in consistently promoting the Coach brand. In addition, before Coach took over distribution, the brand was viewed by Chinese customers as a second- or third-class luxury brand inferior to such premium brands as Louis Vuitton. Post-acquisition, Coach is starting to see good results from its extensive marketing and advertising campaigns in the form of a 90% repurchase rate among Chinese who made an initial purchase. However, the company still has a long way to go: according to a report from Sina Web in May 2012, the brand awareness of Coach in China is only about 16%, compared with 79% in North America and 64% in Japan. Further complicating brand awareness, it is very difficult for the Chinese to pronounce the word "Coach". There were initially many different translations of "Coach" including "kaoqi", keqi", "kouzi", "gaozi" and others. In some locations the company is still known by the original, unpronounceable brand name. The most broadly used translation today is "kouchi". Staffing & Recruitment in Direct Distribution Channels Customer service employees are key to a brand's perception, especially in flagship stores. Bain has identified human resources as a key driver behind the slowing of store expansion for luxury brands in China as a whole, stating that "talent shortage and rising labor costs remain major hurdles." Coach plans an aggressive increase in stores and it will face difficulty in staffing them appropriately. In a June 2012 interview with Money 163, John Seliger, President & CEO at Coach China remarked: "We plan to open around 30 stores a year for the next several years in China." Finding, selecting and recruiting the right people for these stores will be essential to preserving the brand image. Selling Luxury Online in China The online luxury market in China was worth over 10.7 billion RMB in 2011, an almost 70% increase from the previous year. Considering this rapid growth, companies cannot afford to ignore e-commerce channels, but creating a premium experience online can be very difficult. Websites do not give a customer the same first class service as shopping inside a flagship store. Online sales in China are further complicated by the fact that China is a country with a high-context culture, where the interpretation of messages rests heavily on contextual cues and little is made explicit as part of the message. Consumers in high-context cultures are not as invested in product descriptions. They consider product information from a salesperson more trustworthy and gather opinions from previous buyers. They react poorly to advertisements that do not place the product in a greater context (for example: a photo of a handbag by itself vs. someone using that handbag.) These preferences can limit the effectiveness of traditional e-commerce platforms, whether they are a company-owned website or a third-party vendor. Another barrier to successful online sales is the extensive counterfeiting of luxury goods in China. In its 2012 China Consumer Survey, McKinsey noted that: "Three-quarters of those who have shunned the Internet as a channel for making luxury purchases cited concern about fake products as one of their top reasons." Globe-trotting Shoppers Every year, greater numbers of the Chinese are traveling abroad due to rising incomes and A (((. 97% UA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 7 of 8) the strength of RMB compared to other global currencies. Exhibit 5 shows the rapid growth of outbound travelers year-over-year. Exhibit 5: Chinese Outbound Travelers 70 60 50 40 30 20 10 0 7.1 7.6 2.1 1995 100 90 80 70 60 50 40 30 20 10 2.4 0 8.2 2.4 8.4 68 1996 1997 1998 1999 2000 Total Chinese Outbound Travelers (mil.) Source: Bain & Company. 3.2 9.2 87 27% Mainland China 12.1 10.5 4.3 5.6 6.9 16.6 2009 (RMB bil.) 10.1 50 Exhibit 6: Chinese Luxury Consumption Domestic vs. Abroad 20.2 45% 14.8 Source: China Statistics Bureau. Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 28.9 72 31.0 These travelers are making significant purchases abroad. As Exhibit 6 shows, although spending in mainland China remains the highest, spending in Hong Kong and the rest of the world (while still lower) has a significantly higher growth rate. Hong Kong G Macau 23.0 2010 (RMB bil.) 34.5 25.1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 28.8 Chinese Outbound Travelers for Personal Reasons (mil.) 38 41.0 38% 47.7 40.1 42.2 45.8 34.9 Rest of World 2010 growth rate 52 57.4 51.5 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Increased spending abroad by traveling Chinese citizens is not just due to tourism. Mainland China has very high tariffs, resulting in prices approximately 33 % higher than elsewhere. Not only do consumers choose to buy in Hong Kong and the rest of the world instead of on the Chinese mainland, but a lucrative black market in illegal online goods has sprung up. Entrepreneurs buy tax-free goods in other locations and then re-sell them to consumers in mainland China at a major discount. Discussion Questions 1. What are Coach's existing distribution channels in China? Which do you think is the most important? G A (((. 97% LA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 1 of 8) Coach Takes on China: Leveraging Distribution to Solve Unique Challenges Case Summary Coach Inc., the U.S. based luxury leather goods and accessories manufacturer, owes its success to the "affordable luxury" positioning supported by large-scale distribution. Lower price points for quality goods differentiate Coach from competitors like Louis Vuitton while a wide variety of simultaneous distribution channels tailored to individual customer segments allow them to fully infiltrate a market without compromising the Coach brand. As Coach's growth in the United States has stagnated due to market saturation, the company has attempted expansion on a global scale, beginning with the lucrative and fast-growing Asian markets. After a spectacular success in Japan, Coach faces unique challenges in China: inconsistent brand perception, trouble staffing flagship stores due to rapid expansion, globe-trotting shoppers and more. Can the company tailor its distribution strategies to support the brand's adoption by the Chinese, or will China bring a halt to Coach's initial success in Asian markets? In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort said: "We don't know what China will be, but we can tell you we only have 3% market share and 4% brand awareness. Louis Vuitton has over 30% market share. The [handbag and women's accessories] market in China, Hong Kong and Macau is about $1.2 billion today, excluding Taiwan. If we are able to replicate what we did in Japan, the business will double in the next four or five years." History of Coach Coach, Inc. is a luxury leather goods and accessories manufacturer that was founded in the United States in 1941. Coach has positioned its brand as "affordable luxury", allowing the company to target both upper-class big spenders and the more price-sensitive middle class hungry for signifiers of affluence within the reach of their comparatively slimmer wallets. Today, the company boasts a strong global brand and growing international sales with over 800 Coach stores located in the United States and Asia alone, with additional revenue coming in from indirect channels. Coach's Global Distribution Strategy & Operations Coach's distribution model is composed of two main segments, Direct-to-Consumer and Indirect. Within these segments, a mix of channels is blended and balanced to achieve the perfect mix for each market. While these outlets vary slightly in different countries, the customer segmentation and purposes of each remain fairly consistent. Generally, the direct channel is composed of retail stores, factory stores and e-commerce. Retail or flagship stores offer a superior shopping experience that enhances the Coach brand and targets higher-income, older customers. Factory stores are a great way to move discontinued or discounted products as well as exclusives and they target customers who would otherwise not buy due to price-point (prices 10 - 50% lower than normal list prices). E-commerce sites serve as a communications tool to showcase the brand, drive traffic to Coach stores and process direct-to-consumer orders. The indirect channel is composed of wholesale stores, free-standing units, department stores and others. These outlets vary by country depending on what is most appropriate. They target customers who prefer to shop in local or department stores. The product mix is developed by Coach to match consumer needs in this market and is different from what customers would find in a Coach flagship store. Indirect distribution can be an effective entry technique when expanding globally, and This case was prepared by Kang Liu, Helena Mutak, and Xiaoying Wei of the Fox School of Business at Temple University under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2013). G A (((. 97% U U.S. Wed 5:43 AM Search E III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 1 of 8) Coach Takes on China: Leveraging Distribution to Solve Unique Challenges Case Summary Coach Inc., the U.S. based luxury leather goods and accessories manufacturer, owes its success to the "affordable luxury" positioning supported by large-scale distribution. Lower price points for quality goods differentiate Coach from competitors like Louis Vuitton while a wide variety of simultaneous distribution channels tailored to individual customer segments allow them to fully infiltrate a market without compromising the Coach brand. As Coach's growth in the United States has stagnated due to market saturation, the company has attempted expansion on a global scale, beginning with the lucrative and fast-growing Asian markets. After a spectacular success in Japan, Coach faces unique challenges in China: inconsistent brand perception, trouble staffing flagship stores due to rapid expansion, globe-trotting shoppers and more. Can the company tailor its distribution strategies to support the brand's adoption by the Chinese, or will China bring a halt to Coach's initial success in Asian markets? In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort said: "We don't know what China will be, but we can tell you we only have 3% market share and 4% brand awareness. Louis Vuitton has over 30% market share. The [handbag and women's accessories] market in China, Hong Kong and Macau is about $1.2 billion today, excluding Taiwan. If we are able to replicate what we did in Japan, the business will double in the next four or five years." History of Coach Coach, Inc. is a luxury leather goods and accessories manufacturer that was founded in the United States in 1941. Coach has positioned its brand as "affordable luxury", allowing the company to target both upper-class big spenders and the more price-sensitive middle class hungry for signifiers of affluence within the reach of their comparatively slimmer wallets. Today, the company boasts a strong global brand and growing international sales with over 800 Coach stores located in the United States and Asia alone, with additional revenue coming in from indirect channels. Coach's Global Distribution Strategy & Operations Coach's distribution model is composed of two main segments, Direct-to-Consumer and Indirect. Within these segments, a mix of channels is blended and balanced to achieve the perfect mix for each market. While these outlets vary slightly in different countries, the customer segmentation and purposes of each remain fairly consistent. Generally, the direct channel is composed of retail stores, factory stores and e-commerce. Retail or flagship stores offer a superior shopping experience that enhances the Coach brand and targets higher-income, older customers. Factory stores are a great way to move discontinued or discounted products as well as exclusives and they target customers who would otherwise not buy due to price-point (prices 10 - 50% lower than normal list prices). E-commerce sites serve as a communications tool to showcase the brand, drive traffic to Coach stores and process direct-to-consumer orders. The indirect channel is composed of wholesale stores, free-standing units, department stores and others. These outlets vary by country depending on what is most appropriate. They target customers who prefer to shop in local or department stores. The product mix is developed by Coach to match consumer needs in this market and is different from what customers would find in a Coach flagship store. Indirect distribution can be an effective entry technique when expanding globally, and This case was prepared by Kang Liu, Helena Mutak, and Xiaoying Wei of the Fox School of Business at Temple University under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2013). G A (((. 97% U U.S. Wed 5:43 AM Search E III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 2 of 8) Coach has used it with success in markets such as Japan. The indirect channel also includes licensing deals, which are a very small percentage of sales and limited to accessories only. Overall, 11% of Coach's net sales come from indirect channels with the remaining 89% resulting from direct sales. Extensive distribution can compromise the luxury image of a brand, but Coach protects brand integrity by placing factory stores a set distance away from the nearest flagship location. Only Coach's flagship stores sell the latest merchandise, and sales are only allowed at factory locations for older products. In addition, Coach does not allow its wholesalers or department stores to discount Coach merchandise. This approach allows the company to cater to multiple customer segments with different price points while retaining the image of exclusivity necessary to a global luxury brand. When paired with Coach's use of locally based distribution centers, global sourcing system and consistent branding, its distribution model has allowed the company to remain near the top of the luxury and handbag accessories market in the United States and Japan. Coach maintains three primary distribution centers: a directly-owned center in Jacksonville, Florida and two third-party owned distribution centers in Shanghai and Japan. These centers handle warehousing, stock replenishment and process direct to customer orders. For a more complete picture, Exhibit 1 shows Coach's current distribution, corporate, sourcing and product development facilities by square footage: Exhibit 1: Coach's Current Facilities (Image source: www.coach.com) Location Jacksonville, Florida. New York, New York. Carlstadt, New Jersey Tokyo, Japan Dongguan, China Shanghai, China Hong Kong Hong Kong Ho Chi Minh City, Vietnam Taipei City, Taiwan Hong Kong Singapore Seoul, South Korea Beijing, China Long An, Vietnam Chennai, India Luxembourg Use Distribution and consumer service Corporate, sourcing and product development Corporate and product development Coach Japan regional management Sourcing, quality control and product development Coach China regional management Sourcing and quality control Coach Hong Kong regional management Sourcing and quality control Coach Taiwan regional management Sourcing and quality control Coach Singapore regional management Sourcing Coach China regional management Sourcing and quality control Sourcing and quality control. Coach regional management Approximate Square Footage 850,000 433,000() 65,000 32,000 27,000 22,000 17,000 14,000 11,000 6,000 6,000 3,000 3,000 3,000 1,000 600 300 (1) Includes 250,000 square feet in Coach owned buildings. During fiscal 2009, Coach purchased its corporate headquarters building at 516 West 34th Street in New York City for $126.3 million. The Global Luxury Market: Targeting Asia The global luxury market is predicted to reach US$307 billion by 2015. Historically, North America and Europe have held a significant share of the market. In recent years overall share has been declining and growth rates have reversed. Exhibit 2 shows actual and forecasted spending by region over a 9-year period from 2006 - 2015: G A (((. 97% UA U.S. Wed 5:43 AM Search E III 0 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 2 of 8) Coach has used it with success in markets such as Japan. The indirect channel also includes licensing deals, which are a very small percentage of sales and limited to accessories only. Overall, 11% of Coach's net sales come from indirect channels with the remaining 89% resulting from direct sales. Extensive distribution can compromise the luxury image of a brand, but Coach protects brand integrity by placing factory stores a set distance away from the nearest flagship location. Only Coach's flagship stores sell the latest merchandise, and sales are only allowed at factory locations for older products. In addition, Coach does not allow its wholesalers or department stores to discount Coach merchandise. This approach allows the company to cater to multiple customer segments with different price points while retaining the image of exclusivity necessary to a global luxury brand. When paired with Coach's use of locally based distribution centers, global sourcing system and consistent branding, its distribution model has allowed the company to remain near the top of the luxury and handbag accessories market in the United States and Japan. Coach maintains three primary distribution centers: a directly-owned center in Jacksonville, Florida and two third-party owned distribution centers in Shanghai and Japan. These centers handle warehousing, stock replenishment and process direct to customer orders. For a more complete picture, Exhibit 1 shows Coach's current distribution, corporate, sourcing and product development facilities by square footage: Exhibit 1: Coach's Current Facilities (Image source: www.coach.com) Location Jacksonville, Florida. New York, New York. Carlstadt, New Jersey Tokyo, Japan Dongguan, China Shanghai, China Hong Kong Hong Kong Ho Chi Minh City, Vietnam Taipei City, Taiwan Hong Kong Singapore Seoul, South Korea Beijing, China Long An, Vietnam Chennai, India Luxembourg Use Distribution and consumer service Corporate, sourcing and product development Corporate and product development Coach Japan regional management Sourcing, quality control and product development Coach China regional management Sourcing and quality control Coach Hong Kong regional management Sourcing and quality control Coach Taiwan regional management Sourcing and quality control Coach Singapore regional management Sourcing Coach China regional management Sourcing and quality control Sourcing and quality control. Coach regional management Approximate Square Footage 850,000 433,000() 65,000 32,000 27,000 22,000 17,000 14,000 11,000 6,000 6,000 3,000 3,000 3,000 1,000 600 300 (1) Includes 250,000 square feet in Coach owned buildings. During fiscal 2009, Coach purchased its corporate headquarters building at 516 West 34th Street in New York City for $126.3 million. The Global Luxury Market: Targeting Asia The global luxury market is predicted to reach US$307 billion by 2015. Historically, North America and Europe have held a significant share of the market. In recent years overall share has been declining and growth rates have reversed. Exhibit 2 shows actual and forecasted spending by region over a 9-year period from 2006 - 2015: G A (((. 97% UA U.S. Wed 5:43 AM Search E III 0 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 3 of 8) Exhibit 2: Share of Global Expenditure on Luxury Branded Products Share of global expenditure on luxury branded products 26.8 22.4 Americas 20.6 Share of Global Sales % 2006 2011e 2015f 37.3 36.1 33.4 Europe 4.4 5.1 15.8 5.8 15.7 Middle East and Others 26.8 Japan 9.5 Asia Pacific excluding Japan 33.1 7.1 K (Image Source: Data Monitor: Global Luxury Retailing) With North American sales stagnating, Coach invested resources in global expansion, targeting Asia's rapid growth. The company chose Japan as its point of initial entry due to its already thriving luxury goods market before attempting expansion into China. Coach considered Japan's top 60% income group as its target market while they only see the top 20% income groups as their potential customers in the United States. Success in Japan: One Step Closer to China Coach entered the Japanese market in 1988 with a three stage expansion strategy: exclusive agreement with well-known department store Mitsukoshi, (1988-2001); joint venture with Sumitomo, one of the largest trading companies in Japan (2001-2005); and finally, wholly-owned subsidiary (2005-present). This traditional mode of entry allowed Coach to slowly but effectively grow its distribution network in Japan. As the variety and volume of distribution channels grew, Coach was able to target more consumers and meet unique cultural challenges. When Coach first entered Japan in 1988, the only place that Coach's products were available at was Mitsukoshi Department stores due to the exclusive distribution agreement between Coach and Mitsukoshi. It was a cost effective strategy in the beginning of its expansion in Japan. However, this agreement eventually became restrictive because Coach realized that it had difficulty reaching young consumers through Mitsukoshi. In 2001, Coach acquired PDC, a wholly owned subsidiary of Mitsukoshi, and started a joint venture with Sumitomo Corporation in 2001. After the acquisition of PDC, Mitsukoshi remained a key retailer for Coach even though the exclusive agreement had ended. Coach's new joint venture with Sumitomo allowed the company to develop many more channels to target different consumer segments. In 2005, Coach Japan Inc. became a 100% subsidiary of Coach, giving the company full control of its operation and distribution management. Today, Japanese customers can purchase different Coach products through many distribution channels and Coach is one of the top luxury brands in the country. Coach's slow, careful expansion in Japan taught the company effective A (((. 97% UA U.S. Wed 5:43 AM Search PS FACEAREER? III 10 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 3 of 8) Exhibit 2: Share of Global Expenditure on Luxury Branded Products Share of global expenditure on luxury branded products 26.8 22.4 Americas 20.6 Share of Global Sales % 2006 2011e 2015f 37.3 36.1 33.4 Europe 4.4 5.1 15.8 5.8 15.7 Middle East and Others 26.8 Japan 9.5 Asia Pacific excluding Japan 33.1 7.1 K (Image Source: Data Monitor: Global Luxury Retailing) With North American sales stagnating, Coach invested resources in global expansion, targeting Asia's rapid growth. The company chose Japan as its point of initial entry due to its already thriving luxury goods market before attempting expansion into China. Coach considered Japan's top 60% income group as its target market while they only see the top 20% income groups as their potential customers in the United States. Success in Japan: One Step Closer to China Coach entered the Japanese market in 1988 with a three stage expansion strategy: exclusive agreement with well-known department store Mitsukoshi, (1988-2001); joint venture with Sumitomo, one of the largest trading companies in Japan (2001-2005); and finally, wholly-owned subsidiary (2005-present). This traditional mode of entry allowed Coach to slowly but effectively grow its distribution network in Japan. As the variety and volume of distribution channels grew, Coach was able to target more consumers and meet unique cultural challenges. When Coach first entered Japan in 1988, the only place that Coach's products were available at was Mitsukoshi Department stores due to the exclusive distribution agreement between Coach and Mitsukoshi. It was a cost effective strategy in the beginning of its expansion in Japan. However, this agreement eventually became restrictive because Coach realized that it had difficulty reaching young consumers through Mitsukoshi. In 2001, Coach acquired PDC, a wholly owned subsidiary of Mitsukoshi, and started a joint venture with Sumitomo Corporation in 2001. After the acquisition of PDC, Mitsukoshi remained a key retailer for Coach even though the exclusive agreement had ended. Coach's new joint venture with Sumitomo allowed the company to develop many more channels to target different consumer segments. In 2005, Coach Japan Inc. became a 100% subsidiary of Coach, giving the company full control of its operation and distribution management. Today, Japanese customers can purchase different Coach products through many distribution channels and Coach is one of the top luxury brands in the country. Coach's slow, careful expansion in Japan taught the company effective A (((. 97% UA U.S. Wed 5:43 AM Search PS FACEAREER? III 10 Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 4 of 8) growth techniques and set the stage for their aggressive entry into China. Coach Enters China 3rd "-party Buoyed by its ongoing success in Japan, Coach entered China in 2003 via a distributor, ImagineX Group. ImagineX Group is a prominent retail, brand management and distribution companies, and its website describes itself as having "unrivaled market coverage in Greater China." Unlike Coach's earlier exclusive partnership with Mitsukoshi in Japan, its agreement with Imagine X Group allowed it to open multiple locations across China, including several key stores located in Hong Kong, Beijing and Shanghai. Coach China operated through the ImagineX Group for six years until 2009, when Coach acquired all of its businesses in Hong Kong, Macau and mainland China. Following the acquisition, the ImagineX Group continued to provide Coach China with "support services in areas such as distribution, logistics, human resources, accounting, payroll and information systems... [allowing] the Coach team to focus on brand-building and direct management of the front end of the retail business where it directly touches the consumer." In 2010, to further support the growth in China and the region, Coach established a third-party owned Asian distribution center in Shanghai to better manage regional logistics while reducing costs. The Luxury Goods Market in China Potential luxury markets in China exist not only in first-tier cities like Beijing and Shanghai, but also in second- and third-tier cities. Growth in China's luxury market is based on the emergence of new consumers in these populations and they present a unique opportunity for growing market share. Exhibit 3 shows Potential Luxury Markets in China. Exhibit 3: Potential Luxury Markets in ina Employee Avg Wages (USD) Province Beijing Shanghai Jiangsu Zhejiang City Beijing Shanghai Nanjing Hangzhou Ningbo Guangzhou Shenzhen Jinan Qingdao Shenyang Dalian Chongqing Chengdu Fuzhou Xiamen Zhengzhou Shijiazhuang Tianjing Changsha Wuhan Anhui Hefei 5,962 Source: China Statistics Bureau and 2011 China Private Wealth Report [16]. Data as of 2010. RMB/USD=6.5897. Fujiang 17,348 6,368 Henan Hebei 5,218 14,214 1 Tianjing Hunan 10,577 5 Hubei 5 10,095 8,283 495 8 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Guangdong Shandong Liaoning Population GDP/Capita (10,000s) (USD) 17,028 18,445 12,311 13,101 13,648 20,233 55,952 9,824 Sichuan 1,258 1,412 632 689 574 806 260 604 764 720 586 3,303 1,149 646 180 963 989 985 652 837 11,260 10,581 13,348 3,641 7,331 7,338 9,967 10,907 7,403 7,401 6,598 8,270 7,657 5,744 5,737 6,358 6,770 5,367 5,858 5,282 # of cities with population 21 mil.) 6,113 4,974 4,774 8,037 5,818 5,964 1 1 12 5 11 13 4 1 11 4 HNWS (Wealth > RMB 10 mil.) 9 4 > 30000 > 30000 > 30000 >30000 >30000 [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] Exhibit 4 shows Coach's current penetration relative to top competitors in the luxury leather goods market by number of stores and cities entered per city tier: G A (((. 97% U U.S. Wed 5:43 AM Search SESETETUT III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 4 of 8) growth techniques and set the stage for their aggressive entry into China. Coach Enters China 3rd "-party Buoyed by its ongoing success in Japan, Coach entered China in 2003 via a distributor, ImagineX Group. ImagineX Group is a prominent retail, brand management and distribution companies, and its website describes itself as having "unrivaled market coverage in Greater China." Unlike Coach's earlier exclusive partnership with Mitsukoshi in Japan, its agreement with Imagine X Group allowed it to open multiple locations across China, including several key stores located in Hong Kong, Beijing and Shanghai. Coach China operated through the ImagineX Group for six years until 2009, when Coach acquired all of its businesses in Hong Kong, Macau and mainland China. Following the acquisition, the ImagineX Group continued to provide Coach China with "support services in areas such as distribution, logistics, human resources, accounting, payroll and information systems... [allowing] the Coach team to focus on brand-building and direct management of the front end of the retail business where it directly touches the consumer." In 2010, to further support the growth in China and the region, Coach established a third-party owned Asian distribution center in Shanghai to better manage regional logistics while reducing costs. The Luxury Goods Market in China Potential luxury markets in China exist not only in first-tier cities like Beijing and Shanghai, but also in second- and third-tier cities. Growth in China's luxury market is based on the emergence of new consumers in these populations and they present a unique opportunity for growing market share. Exhibit 3 shows Potential Luxury Markets in China. Exhibit 3: Potential Luxury Markets in ina Employee Avg Wages (USD) Province Beijing Shanghai Jiangsu Zhejiang City Beijing Shanghai Nanjing Hangzhou Ningbo Guangzhou Shenzhen Jinan Qingdao Shenyang Dalian Chongqing Chengdu Fuzhou Xiamen Zhengzhou Shijiazhuang Tianjing Changsha Wuhan Anhui Hefei 5,962 Source: China Statistics Bureau and 2011 China Private Wealth Report [16]. Data as of 2010. RMB/USD=6.5897. Fujiang 17,348 6,368 Henan Hebei 5,218 14,214 1 Tianjing Hunan 10,577 5 Hubei 5 10,095 8,283 495 8 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Guangdong Shandong Liaoning Population GDP/Capita (10,000s) (USD) 17,028 18,445 12,311 13,101 13,648 20,233 55,952 9,824 Sichuan 1,258 1,412 632 689 574 806 260 604 764 720 586 3,303 1,149 646 180 963 989 985 652 837 11,260 10,581 13,348 3,641 7,331 7,338 9,967 10,907 7,403 7,401 6,598 8,270 7,657 5,744 5,737 6,358 6,770 5,367 5,858 5,282 # of cities with population 21 mil.) 6,113 4,974 4,774 8,037 5,818 5,964 1 1 12 5 11 13 4 1 11 4 HNWS (Wealth > RMB 10 mil.) 9 4 > 30000 > 30000 > 30000 >30000 >30000 [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] [10000,30000] Exhibit 4 shows Coach's current penetration relative to top competitors in the luxury leather goods market by number of stores and cities entered per city tier: G A (((. 97% U U.S. Wed 5:43 AM Search SESETETUT III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 5 of 8) Exhibit 4: The Expansion of Luxury Retail Networks in China # of Cities Entered Tier Tier Tier 1 2 3 Category Brand Coach Gucci Hermes Lancel Loewe Tier Tier 1 2 # of Stores 21 12 10 9 5 9 8 5.3 1.6 1.0 Leather Goods Leather Goods 4.0 1.1 0.0 2.5 1.1 0.0 3.0 1.0 0.0 Leather Goods Leather Goods Leather Goods Leather Goods Leather Goods 2.5 1.4 0.0 2.3 1.2 0.0 Louis Vuitton Prada 2.0 1.3 0.0 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 42 30 11 15 10 Tier 3 32 13 3 0 0 0 0 0 0 4 3 4 3 2 4 4 26 27 10 15 7 26 10 3 0 0 0 0 0 # of Stores per city Tier Tier Tier 1 2 3 0 Coach's Ideal Customer In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort defined Coach's target customer segment: "In China, there's a luxury consumer that represents perhaps 0.05% of the population -- very small but with enormous purchasing power. That's not our primary target. Our target is the emerging middle class who have gone to university and are now getting 30% to 40% [pay] increases a year as engineers, doctors, bankers and lawyers. These women are trading up and investing in plasma TVs and travel and laptop computers and Coach bags. They are looking for ways to broaden their life, and Coach is one way." Coach's Current Distribution Channels in China Traditional Direct & Indirect Channels In 2012, Coach has 96 department store shop-in-shop locations as well as freestanding flagship, retail and factory stores and expects to open another 30 stores in the upcoming year, most of which will be located in second- and third-tier cities such as Urumchi and Nanning. The President and CEO of Coach China Jonathan Seliger stated that: "There are more than 120 cities in China with the population over 1 million. We hope to get closer to our customers in those cities. In order to stimulate consumption, we plan to open more stores in high traffic areas." E-commerce With more than 140 million e-commerce users in China, China's e-commerce market is predicted to be the world's largest in four years. In December 2011, on its 70th Anniversary, Coach opened its first official online store in China through Taobao Mall, a business-to-consumer e-commerce site under the Alibaba Group. The online store was only open for a one-month long trial period and was managed by a Coach customer service team. It offered 70th-anniversary branded limited edition accessories and leather goods which were exclusively available through the Taobao Mall online shop. Unfortunately, no sales resulted from the trial. On November 8, 2012, Coach announced the launch of its official online Chinese store, www.coach.cn. The website features many different Coach products targeted at the population of mainland China. Jonathon Seliger, CEO & President of Coach China, characterized the launch as "a major milestone in Coach's history, underlining our confidence and unswerving commitment to this growing market." Coach is using singer Leehom Wang, a New-York born Chinese celebrity, as the face of its new website. To increase the appeal of the new e-commerce platform, Coach features exclusive products that are only available online, such as bags signed by Wang. Coach is managing G A (((. 97% LA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 5 of 8) Exhibit 4: The Expansion of Luxury Retail Networks in China # of Cities Entered Tier Tier Tier 1 2 3 Category Brand Coach Gucci Hermes Lancel Loewe Tier Tier 1 2 # of Stores 21 12 10 9 5 9 8 5.3 1.6 1.0 Leather Goods Leather Goods 4.0 1.1 0.0 2.5 1.1 0.0 3.0 1.0 0.0 Leather Goods Leather Goods Leather Goods Leather Goods Leather Goods 2.5 1.4 0.0 2.3 1.2 0.0 Louis Vuitton Prada 2.0 1.3 0.0 Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 42 30 11 15 10 Tier 3 32 13 3 0 0 0 0 0 0 4 3 4 3 2 4 4 26 27 10 15 7 26 10 3 0 0 0 0 0 # of Stores per city Tier Tier Tier 1 2 3 0 Coach's Ideal Customer In a 2008 interview with the Wall Street Journal, Chief Executive Lew Frankfort defined Coach's target customer segment: "In China, there's a luxury consumer that represents perhaps 0.05% of the population -- very small but with enormous purchasing power. That's not our primary target. Our target is the emerging middle class who have gone to university and are now getting 30% to 40% [pay] increases a year as engineers, doctors, bankers and lawyers. These women are trading up and investing in plasma TVs and travel and laptop computers and Coach bags. They are looking for ways to broaden their life, and Coach is one way." Coach's Current Distribution Channels in China Traditional Direct & Indirect Channels In 2012, Coach has 96 department store shop-in-shop locations as well as freestanding flagship, retail and factory stores and expects to open another 30 stores in the upcoming year, most of which will be located in second- and third-tier cities such as Urumchi and Nanning. The President and CEO of Coach China Jonathan Seliger stated that: "There are more than 120 cities in China with the population over 1 million. We hope to get closer to our customers in those cities. In order to stimulate consumption, we plan to open more stores in high traffic areas." E-commerce With more than 140 million e-commerce users in China, China's e-commerce market is predicted to be the world's largest in four years. In December 2011, on its 70th Anniversary, Coach opened its first official online store in China through Taobao Mall, a business-to-consumer e-commerce site under the Alibaba Group. The online store was only open for a one-month long trial period and was managed by a Coach customer service team. It offered 70th-anniversary branded limited edition accessories and leather goods which were exclusively available through the Taobao Mall online shop. Unfortunately, no sales resulted from the trial. On November 8, 2012, Coach announced the launch of its official online Chinese store, www.coach.cn. The website features many different Coach products targeted at the population of mainland China. Jonathon Seliger, CEO & President of Coach China, characterized the launch as "a major milestone in Coach's history, underlining our confidence and unswerving commitment to this growing market." Coach is using singer Leehom Wang, a New-York born Chinese celebrity, as the face of its new website. To increase the appeal of the new e-commerce platform, Coach features exclusive products that are only available online, such as bags signed by Wang. Coach is managing G A (((. 97% LA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 6 of 8) the site itself, but order fulfillment will be done by a third party. Coach's Challenges in China Today Brand Awareness Coach is experiencing numerous brand awareness issues stemming from entering China via a third party vendor. ImagineX was very profit focused with an already existing and diverse brand portfolio. ImagineX did not invest many resources in consistently promoting the Coach brand. In addition, before Coach took over distribution, the brand was viewed by Chinese customers as a second- or third-class luxury brand inferior to such premium brands as Louis Vuitton. Post-acquisition, Coach is starting to see good results from its extensive marketing and advertising campaigns in the form of a 90% repurchase rate among Chinese who made an initial purchase. However, the company still has a long way to go: according to a report from Sina Web in May 2012, the brand awareness of Coach in China is only about 16%, compared with 79% in North America and 64% in Japan. Further complicating brand awareness, it is very difficult for the Chinese to pronounce the word "Coach". There were initially many different translations of "Coach" including "kaoqi", keqi", "kouzi", "gaozi" and others. In some locations the company is still known by the original, unpronounceable brand name. The most broadly used translation today is "kouchi". Staffing & Recruitment in Direct Distribution Channels Customer service employees are key to a brand's perception, especially in flagship stores. Bain has identified human resources as a key driver behind the slowing of store expansion for luxury brands in China as a whole, stating that "talent shortage and rising labor costs remain major hurdles." Coach plans an aggressive increase in stores and it will face difficulty in staffing them appropriately. In a June 2012 interview with Money 163, John Seliger, President & CEO at Coach China remarked: "We plan to open around 30 stores a year for the next several years in China." Finding, selecting and recruiting the right people for these stores will be essential to preserving the brand image. Selling Luxury Online in China The online luxury market in China was worth over 10.7 billion RMB in 2011, an almost 70% increase from the previous year. Considering this rapid growth, companies cannot afford to ignore e-commerce channels, but creating a premium experience online can be very difficult. Websites do not give a customer the same first class service as shopping inside a flagship store. Online sales in China are further complicated by the fact that China is a country with a high-context culture, where the interpretation of messages rests heavily on contextual cues and little is made explicit as part of the message. Consumers in high-context cultures are not as invested in product descriptions. They consider product information from a salesperson more trustworthy and gather opinions from previous buyers. They react poorly to advertisements that do not place the product in a greater context (for example: a photo of a handbag by itself vs. someone using that handbag.) These preferences can limit the effectiveness of traditional e-commerce platforms, whether they are a company-owned website or a third-party vendor. Another barrier to successful online sales is the extensive counterfeiting of luxury goods in China. In its 2012 China Consumer Survey, McKinsey noted that: "Three-quarters of those who have shunned the Internet as a channel for making luxury purchases cited concern about fake products as one of their top reasons." Globe-trotting Shoppers Every year, greater numbers of the Chinese are traveling abroad due to rising incomes and A (((. 97% UA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 6 of 8) the site itself, but order fulfillment will be done by a third party. Coach's Challenges in China Today Brand Awareness Coach is experiencing numerous brand awareness issues stemming from entering China via a third party vendor. ImagineX was very profit focused with an already existing and diverse brand portfolio. ImagineX did not invest many resources in consistently promoting the Coach brand. In addition, before Coach took over distribution, the brand was viewed by Chinese customers as a second- or third-class luxury brand inferior to such premium brands as Louis Vuitton. Post-acquisition, Coach is starting to see good results from its extensive marketing and advertising campaigns in the form of a 90% repurchase rate among Chinese who made an initial purchase. However, the company still has a long way to go: according to a report from Sina Web in May 2012, the brand awareness of Coach in China is only about 16%, compared with 79% in North America and 64% in Japan. Further complicating brand awareness, it is very difficult for the Chinese to pronounce the word "Coach". There were initially many different translations of "Coach" including "kaoqi", keqi", "kouzi", "gaozi" and others. In some locations the company is still known by the original, unpronounceable brand name. The most broadly used translation today is "kouchi". Staffing & Recruitment in Direct Distribution Channels Customer service employees are key to a brand's perception, especially in flagship stores. Bain has identified human resources as a key driver behind the slowing of store expansion for luxury brands in China as a whole, stating that "talent shortage and rising labor costs remain major hurdles." Coach plans an aggressive increase in stores and it will face difficulty in staffing them appropriately. In a June 2012 interview with Money 163, John Seliger, President & CEO at Coach China remarked: "We plan to open around 30 stores a year for the next several years in China." Finding, selecting and recruiting the right people for these stores will be essential to preserving the brand image. Selling Luxury Online in China The online luxury market in China was worth over 10.7 billion RMB in 2011, an almost 70% increase from the previous year. Considering this rapid growth, companies cannot afford to ignore e-commerce channels, but creating a premium experience online can be very difficult. Websites do not give a customer the same first class service as shopping inside a flagship store. Online sales in China are further complicated by the fact that China is a country with a high-context culture, where the interpretation of messages rests heavily on contextual cues and little is made explicit as part of the message. Consumers in high-context cultures are not as invested in product descriptions. They consider product information from a salesperson more trustworthy and gather opinions from previous buyers. They react poorly to advertisements that do not place the product in a greater context (for example: a photo of a handbag by itself vs. someone using that handbag.) These preferences can limit the effectiveness of traditional e-commerce platforms, whether they are a company-owned website or a third-party vendor. Another barrier to successful online sales is the extensive counterfeiting of luxury goods in China. In its 2012 China Consumer Survey, McKinsey noted that: "Three-quarters of those who have shunned the Internet as a channel for making luxury purchases cited concern about fake products as one of their top reasons." Globe-trotting Shoppers Every year, greater numbers of the Chinese are traveling abroad due to rising incomes and A (((. 97% UA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 7 of 8) the strength of RMB compared to other global currencies. Exhibit 5 shows the rapid growth of outbound travelers year-over-year. Exhibit 5: Chinese Outbound Travelers 70 60 50 40 30 20 10 0 7.1 7.6 2.1 1995 100 90 80 70 60 50 40 30 20 10 2.4 0 8.2 2.4 8.4 68 1996 1997 1998 1999 2000 Total Chinese Outbound Travelers (mil.) Source: Bain & Company. 3.2 9.2 87 27% Mainland China 12.1 10.5 4.3 5.6 6.9 16.6 2009 (RMB bil.) 10.1 50 Exhibit 6: Chinese Luxury Consumption Domestic vs. Abroad 20.2 45% 14.8 Source: China Statistics Bureau. Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 28.9 72 31.0 These travelers are making significant purchases abroad. As Exhibit 6 shows, although spending in mainland China remains the highest, spending in Hong Kong and the rest of the world (while still lower) has a significantly higher growth rate. Hong Kong G Macau 23.0 2010 (RMB bil.) 34.5 25.1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 28.8 Chinese Outbound Travelers for Personal Reasons (mil.) 38 41.0 38% 47.7 40.1 42.2 45.8 34.9 Rest of World 2010 growth rate 52 57.4 51.5 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Increased spending abroad by traveling Chinese citizens is not just due to tourism. Mainland China has very high tariffs, resulting in prices approximately 33 % higher than elsewhere. Not only do consumers choose to buy in Hong Kong and the rest of the world instead of on the Chinese mainland, but a lucrative black market in illegal online goods has sprung up. Entrepreneurs buy tax-free goods in other locations and then re-sell them to consumers in mainland China at a major discount. Discussion Questions 1. What are Coach's existing distribution channels in China? Which do you think is the most important? G A (((. 97% LA U.S. Wed 5:43 AM Search III Preview File Edit View Go Tools Window HIGHLIGHTS & NOTES Help 8. Case 4 - Coach Takes on China (2013).pdf (page 7 of 8) the strength of RMB compared to other global currencies. Exhibit 5 shows the rapid growth of outbound travelers year-over-year. Exhibit 5: Chinese Outbound Travelers 70 60 50 40 30 20 10 0 7.1 7.6 2.1 1995 100 90 80 70 60 50 40 30 20 10 2.4 0 8.2 2.4 8.4 68 1996 1997 1998 1999 2000 Total Chinese Outbound Travelers (mil.) Source: Bain & Company. 3.2 9.2 87 27% Mainland China 12.1 10.5 4.3 5.6 6.9 16.6 2009 (RMB bil.) 10.1 50 Exhibit 6: Chinese Luxury Consumption Domestic vs. Abroad 20.2 45% 14.8 Source: China Statistics Bureau. Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. 28.9 72 31.0 These travelers are making significant purchases abroad. As Exhibit 6 shows, although spending in mainland China remains the highest, spending in Hong Kong and the rest of the world (while still lower) has a significantly higher growth rate. Hong Kong G Macau 23.0 2010 (RMB bil.) 34.5 25.1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 28.8 Chinese Outbound Travelers for Personal Reasons (mil.) 38 41.0 38% 47.7 40.1 42.2 45.8 34.9 Rest of World 2010 growth rate 52 57.4 51.5 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: S&P Dow Jones Indices - Measuring the Business of Luxury Living, 2013. Increased spending abroad by traveling Chinese citizens is not just due to tourism. Mainland China has very high tariffs, resulting in prices approximately 33 % higher than elsewhere. Not only do consumers choose to buy in Hong Kong and the rest of the world instead of on the Chinese mainland, but a lucrative black market in illegal online goods has sprung up. Entrepreneurs buy tax-free goods in other locations and then re-sell them to consumers in mainland China at a major discount. Discussion Questions 1. What are Coach's existing distribution channels in China? Which do you think is the most important? G A (((. 97% LA U.S. Wed 5:43 AM Search III
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Bill currently has no savings but would like to have accumulated $400,000 in his RRSP by the time he retires in 25 years approximately how much must bill save at the end of each month between now and...
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CASE NO#2- INVENTORY VALUATION METHODS TESCO is a British multinational groceries and general merchandise retailer with headquarters in Welwyn Garden City, Hertfordshire, England, United Kingdom. It...
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The following exercises are not grouped by type. Solve each equation. x610x -9
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Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2012. Their salaries for the year total $83,000 and they have taxable interest income of $4,000. They have no...
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If Charles, a 16-year-old child model, earns $50,000 a year and is completely self supporting even though he lives with his parents, can his parents claim him as a dependent? Why or why not?...
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During 2012, Palo Fiero purchases the following property for use in his manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and does not make the election...
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The needle indicator of an electronic instrument is connected to a torsional viscous damper and a torsional spring. If the rotary inertia of the needle indicator about its pivot point is \(25...
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Find the responses of systems governed by the following equations of motion for the initial conditions \(x(0)=1, \dot{x}(0)=0\) : a. \(2 \ddot{x}+8 \dot{x}+16 x=0\) b. \(3 \ddot{x}+12 \dot{x}+9 x=0\)...
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Find the frequency of oscillation and time constant for the systems governed by the following equations: a. \(\ddot{x}+2 \dot{x}+9 x=0\) b. \(\ddot{x}+8 \dot{x}+9 x=0\) c. \(\ddot{x}+6 \dot{x}+9 x=0\)
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