) is a leading American marketer of luxury lifestyle handbags
and other fashion accessories for both men and women. It is one of
the most well-known accessories brands in the U.S. and also
maintains a presence in select international markets. Coach
competes with other premium apparel and accessories players
like Polo Ralph Lauren (
), Liz Claiborne (
), and AnnTaylor (
), as well as high-end brands like Louis Vuitton, Hermes,
Gucci and Prada.
Over the years, Coach has significantly increased its presence
in international markets, with Japan being its prime success story.
The Coach brand gained tremendous popularity in Japan at a time
when standards of living were on the rise in the country. It
successfully avoided direct competition with luxury brands like
Louis Vuitton and Gucci, and "absolute" luxury brands like Hermes
and Loro Piana by establishing itself as an "affordable" luxury
player in a highly competitive market. Today, Coach generates
nearly 20% of its revenues from sales in Japan and has more than
10% share in the Japanese luxury handbag market.
We now see a similar opportunity for Coach in China and envision
potential upside to our
$55.08 price estimate
for Coach's stock (which implies a slight premium to market
Saturation in the U.S. Luxury Handbag Market
Coach is the largest player in the U.S. luxury handbag market
with close to 40% market share. While Coach's aspirational luxury
image has helped it attain the top position in the U.S., the
company realizes that further growth in this region is
limited. Coach estimates the maximum possible number of stores
in North America (based on market potential) to be 500. With about
473 Coach retail stores already operating in the U.S., Coach has
shifted focus to international markets to pursue its core growth
Also, the fact that the U.S. handbag market is highly correlated
with macroeconomic conditions is not very promising for Coach. A
slow recovery after recession and cautious consumer outlook has led
Coach to increasingly shift strategy to international expansion,
which on the other hand has been highly lucrative.
China Could Become a Huge Luxury Market
Luxury consumption in China has seen double digit growth in
recent years as a result of rapid economic growth and rising
standards of living in China. The Chinese market is expected to
become the largest luxury market by 2014 comprising an estimated
23% of the world market, providing tremendous growth potential.
Seeing the potential in the Chinese market, Coach acquired
domestic retail businesses in Hong Kong, Macau and mainland
China (''Coach China'') from its former distributor, the ImagineX
group, in fiscal 2009. The acquisitions provided the company with
greater control over the brand in China, enabling Coach to raise
brand awareness and aggressively grow market share with the
As a result of its timely entry into the Chinese market and its
"aspirational" luxury image, Coach has done extremely well in China
over the last few years and witnessed a three-fold increase in
China sales in fiscal 2010. Recently, the firm announced the
opening of 25 new stores in China and now expects China sales to
increase by 75% in fiscal 2011.
We estimate there could be an upside of 6% to our $55.08 Trefis
price estimate for Coach's stock if the number of Coach stores in
China increase at a faster rate, reaching 250 by 2017, instead of
our current forecast of 160.
To see the impact that various trends in number of Coach
stores could have on Coach's stock value, drag the trend line in
the modifiable chart above.
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complete analysis of Coach's stock is here