PEST Analysis

Coach, Inc.

Foundations of Competitive Strategy Project

Project by:

Anvar Babaev

ETU20131998

Contents

Company Overview.. 3

PEST Analysis. 4

Porter’s Five Forces Analysis. 7

Financial Analysis. 9

SWOT Analysis. 10

References. 13

Company Overview [1]

Coach, Inc. is engaged in designing and marketing of accessories and gift products for women and men. The company primarily operates in the US and Japan. It is headquartered in New York City, New York and employed 17,200 people as of June 29, 2013.

The company recorded revenues of $5,075.4 million in the financial year ended June 2013 (FY2013), an increase of 6.6% over FY2012. The operating profit of the company was $1,524.5 million in FY2013, an increase of 0.8% over FY2012. The net profit was $1,034.4 million in FY2013, a decrease of 0.4% compared to FY2012.

Coach is a designer and marketer of accessories and gifts offering women's and men's bags, accessories, footwear, jewelry, wearables, sunwear, watches, travel bags and fragrance. Coach's major trademarks include Coach, Coach and lozenge design, Coach and tag design, Signature C design, Coach Op Art design and The Heritage Logo.

The company operates through two business segments, defined based on geographical focus: North America and International. Coach also enters into licensing agreements with third parties to distribute its products. These licensees have the right to distribute Coach brand products selectively through several other channels, such as shoes in department store shoe salons, watches in selected jewelry stores and eyewear and sunwear in selected optical retailers.

Coach's New York based design team designs all its products. The design team is supported by the merchandising team, which analyzes sales, market trends and consumer preferences to identify business opportunities and guides each season's design process.

According to the revenue analysis the USA and Japan are the two most profitable geographical markets of the company. The US, Coach's largest geographical market, accounted for 65.7% of the total revenues in FY2013. Revenues from the US reached $3,334.5 million in FY2013, an increase of 2.8% over FY2012. Japan accounted for 15% of the total revenues in FY2013. Revenues from Japan reached $760.9 million in FY2013, a decrease of 9.9% compared to FY2012. In this case, following analyses will be based on these two countries as far as they have the most significant influence on the company’s performance.[2]

PEST Analysis

Political

The USA [3]

In November 1991, The United States Congress activated a luxury tax when it was signed by the former President George H.W. Bush. The goal of the tax was to generate additional revenues to reduce the federal budget deficit. This tax was covered material goods such as watches, expensive furs, boats, yachts, private jet planes, jewelry and expensive cars. Congress enacted a 10 percent luxury tax on boats over $100,000, cars over $30,000, aircraft over $250,000, and furs and jewelry over $10,000. The federal government estimated that it would raise $9 billion in revenues over the following five-year period. However, in August 1993 the Congress decided to eliminate the “luxury tax” since it did not achieve its main objective. The tax revenues generated were disappointing and unsatisfactory for the Congress and it also negatively impacted the incomes of the sellers of the luxury items. Though, the luxury automobiles tax was still active for the next 13 years.

Japan [4]

Luxury goods sales in Japan are expected to see modest growth over the forecast period. Although Japan’s consumption tax is expected to increase from the current 5% to 8% in 2014 (a further increase to 10% is scheduled for October 2015), wealthy consumers are likely to continue purchasing luxury goods regardless of their prices. The total number of foreign visitors to Japan is expected to increase further. As the yen may well go down in value further, overseas tourists will enjoy shopping in Japan, which will contribute to the growth in sales of luxury goods in the forecast period.

Economical

The USA [5]

Luxury sales continue to grow in the US. Though the economic recovery allowed for more aggressive growth in the previous three years, 2013 year still showed solid growth in the luxury market as the growing number of wealthy consumers and tourists kept demand high. The continued dominance of the U.S. market is unsurprising considering that North America is home to the largest amount of high net worth individuals in the world. According to the 2013 World Wealth Report from Capgemini and RBCWealth Management, North America reclaimed its position as the largest HNWImarket in 2012, as its market share of 3.73 million HNWIs overtook Asia-Pacific’s 3.68 million.According to Credit Suisse, the U.S. created 94 percent of the new millionaires in the world over the past year. The U.S. “created” 1.7 million of the world's 1.8 million new millionaires over the past 12 months.

Japan [6]

The GDP of the third largest economy in the world, Japan, is expected to grow at a declining rate and reach an estimated $5.94 trillion by 2018 at the current price. Decrease in domestic consumption as a result of declining population is expected to affect the economic growth. The country, however, will be benefitted from significant exports due to recovery of the US economy and yen value going down against the US dollar.

According to McKinsey survey interviews indicate that year-to-date sales of fashion apparel and accessories are down by as much as 20 percent—and even more for some companies and categories, including high-end women’s apparel. Clearly, the financial crisis is the most recent and evident reasons for this. Earlier this year, consumer confidence in Japan fell to its lowest level since it was first tracked, in 1982. Japanese luxury buyers - younger consumers, in particular - say that they have significantly reduced their spending on luxury products over the past year. Luxury buyers with the lowest confidence levels cut spending on them by an average of 11 percent, and even the most optimistic spent slightly less on them after the recession began, in November 2008, than before it. Category by category, McKinsey’s survey results were generally consistent with market trends: watches and jewelry were hardest hit, followed by fashion apparel and leather goods. Skin care and cosmetics fell only modestly.

Confidence is slowly improving, and about 65 percent of the consumers surveyed expect to resume their luxury-spending patterns once the economic crisis has passed. Yet one-third of consumers in the survey declared they would “never spend the same way on luxury items.”

Social

The USA [7]

In recent years, national American celebrities have brought luxury products to the forefront of mainstream media attention. This previously unseen level of mainstream attention, along with the economic recession, drove US consumers to seeking out accessible brands instead of luxury ones. Even as the economy improves, accessible brands such as Coach continue to be crucial in driving growth in luxury spirits, fragrances, and important areas of designer apparel and accessories.

As luxury brands steadily gain more mainstream attention via pop music and television, some brands fear that their status may be in jeopardy. Thus, top luxury companies will look to raise prices to reinstate their brand value to their ultra-wealthy consumer base. The improved economic state of the US will also encourage companies to feel more comfortable about raising prices.

Japan [8]

The economic crisis has undermined consumer confidence globally. Yet Japan is different: the current crisis has not only reduced the spending of consumers but also accelerated fundamental shifts in their attitudes and behavior. These changes are not temporary, and luxury players must adjust their strategies to succeed in a market that, despite the current slowdown, will remain very large and attractive.

To help luxury companies better understand both the near- and longer-term outlook for Japan’s market, McKinsey surveyed more than 1,500 Japanese luxury consumers in March and April 2009. They also interviewed CEOs, presidents, and other senior officers at more than 20 luxury-goods and premium-brand companies, as well as the CEOs of three of Japan’s largest department store chains and a number of luxury hotels.

As a result significant, long-lasting shifts in attitudes and behavior among Japanese luxury consumers were found. Luxury companies can no longer rely on a “brand as badge” mentality. They will have to fight harder (and against more and different competitors) for a share of consumers’ wallets. They will have to woo even loyal buyers in more personalized ways. Reliance on the traditional luxury-goods channels - department stores and company-owned stores - has worked well in the past but will almost certainly damage the long-term health of luxury manufacturers.

Some luxury players understand these changes and are adjusting to them, though many still believe that everything will return to normal, whatever that means, once the downturn has passed.

Technological [9]

Like most other consumer goods, luxury goods are increasingly being sold through internet retailing. When asked to list the positive factors impacting the luxury business, the CEOs in the survey listed online commerce first. E-commerce channels outperformed the market as a whole in 2013 and further growth in internet retailing is expected over the forecast period. With concepts such as Gilt and Net-a-Porter, both consumers and conglomerates are benefiting with new opportunities to save time and cut on overhead costs at the same time engaging new products and untouched demographic groups. Non-grocery retailers (including department stores, specialist boutiques and stores) remains the largest distribution channel for luxury goods in Japan. However, non-store retailing is growing rapidly within luxury goods, driven by internet retailing. As more consumers felt comfortable shopping online, luxury brands made efforts to launch e-commerce sites to diversify the distribution channels to attract consumers. Also, due to the growing number of smartphone users all over the world, luxury brands focused on the expansion of mobile application opportunities.

---

Дата добавления: 2015-11-14