The broad consumer shift to affordable luxury, along with
rapidly increasing demand for luxury goods in China and other
emerging markets, are key factors driving Coach's (
) growth. These factors help Coach compete with other premium
apparel and accessories players like Polo Ralph Lauren's (
), Liz Claiborne (
) and AnnTaylor (
We have a
$57.62 price estimate for Coach's stock
, about 10-15% above market price.
3 Key Trends for Coach -
1. Consumer Shift to Affordable Luxury
Affordable luxury brands and private labels weathered the storm
moderately well during the economic downturn of 2008-09, while
luxury and premium end companies, including Louis Vuitton and
Hermes, suffered a greater slowdown in sales. The luxury market
seems to have been by a consumer shift towards the "less is more"
approach, a positive for Coach.
As the economic recovery gains ground, cautious consumers might
still shy away from the priciest brands. This type of trend would
benefit Coach, which is widely recognized as an 'affordable luxury'
2. Demand for Luxury Goods is Correlated with Economic
Demand for luxury fashion goods can be an indicator of economic
growth. During boom times, consumers with higher income tend to
shift further towards high-end goods like leather handbags,
designer clothes and branded watches.
Luxury goods are cyclical and correlate with GDP in specific
regions, often exaggerating the up and down swings of the economy.
As the global economy recovers, we expect the luxury goods market
to see pre-recessionary growth of 7-8%.
3. Increasing Demand for Luxury Goods in
China and Other Emerging Markets
Luxury consumption in China has recorded double-digit growth in
recent years as a result of rapid economic growth and rising
standards of living. The Chinese market is expected to become the
largest luxury market by 2014, comprising an estimated 23% of the
Other emerging markets including Brazil, South Asia and Central
Asia could experience a 25-30% surge in spending on luxury goods
over the next five years as personal wealth and spending capacity
increase in these markets.
Emerging markets will also see the highest growth in new
openings of luxury goods stores in the coming years.
See our complete analysis of Coach stock here