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Written Assignment 1(A) This is an individual piece of work. Group work is out of bound. The case is taken from the recommended text, Crafting & Executing Strategy – The Quest for Competitive Advantage Concepts and Cases, by Arthur A. Thompson Jr, A.J. Strickland III, John E. Gamble, 16th Edition.
Case 8 Coach Inc.: Is Its Advantage in Luxury Handbags Sustainable? Overview In the six years following its October 2000 initial public offering (IPO), Coach Inc.’s net sales had grown at a compounded annual rate of 26% and its stock price had increased by 1,400% as a result of a strategy keyed to “accessible” luxury. Coach created the “accessible” luxury category in ladies handbags and leather accessories by matching key luxury rivals on quality and styling, while beating them on price by 50% or more. Not only did Coach’s $200 ‐ $500 handbags appeal to middle income consumers wanting a taste of luxury, but affluent consumers with the means to spend $2,000 or more on a handbag regularly snapped up its products as well. By 2006, Coach had become the best‐selling brand of ladies luxury handbags and leather accessories in the U.S. with a 25% market share and was the second best‐selling brand of such products in Japan with an 8% market share. Beyond its winning combination of styling, quality, and pricing, the attractiveness of Coach retail stores and high levels of customer service provided by its employees contributed to its competitive advantage. Much of the company’s growth in net sales was attributable to its rapid growth in company‐owned stores in the U.S. and Japan. Coach stores ranged from prominent flagship stores on Rodeo Drive and Madison Avenue to factory outlet stores. In fact, Coach’s factory stores had achieved higher comparable store growth during 2005 and 2006 than its full‐price stores. At year‐end 2006, comparable store sales in Coach factory stores had increased by 31.9% since year‐end 2005, while comparable store sales for Coach full price stores experienced a 12.3% year‐over‐year increase. Coach’s dramatic growth that resulted from its strategy keyed to “accessible luxury” had not gone unnoticed by long‐established luxury goods makers. In 2006, most leading designer brands had developed sub‐brands that retained the styling and quality of the marquee brand, but sold at considerably more modest price points. For example, while Dolce & Gabbana dresses might sell at price points between $1,000 and $1,500, very similar appearing dresses under Dolce & Gabbana’s “affordable luxury” brand—D&G— were priced at $400 to $600. Going into 2007, Coach Inc. executives expected to sustain the company’s impressive growth through monthly introductions of fresh new handbag designs and the addition of retail locations in the U.S., Japan, and rapidly growing luxury goods markets in Asia. Other growth initiatives included strategic alliances to bring the Coach brand to such additional luxury categories as women’s knitwear and fragrances.
Assignment Questions Answer ALL the following questions: 1. What is competition like in the luxury goods industry? What competitive forces seem to have the greatest effect on industry attractiveness? What are the competitive weapons that rivals are using to try to out manoeuvre one another in the marketplace? Is the pace of rivalry quickening and becoming more intense? Why or why not? 2. How is the market for luxury handbags and leather accessories changing? What are the underlying drivers of change and how might those driving forces change the industry? 3. What key factors determine the success of makers of fine ladies handbags and leather accessories?
Please upload to VISTA the soft copy of the completed preparation exercise with answers to the questions in Word/PDF formats by 24 Sep 2009, before 8.30am. Submit a hard copy of the completed exercise on 24 Sep 2009, immediately after class discussion.