Coach’s Strong Presence In China To Help The Company In The Future
While many fashion brands are looking to North America as they feel the effects of a slowdown in China’s luxury market, accessible luxury brand Coach (NYSE:COH) is seeing the opposite phenomenon, with double digit growth seen in the nine months of their FY 2016. Coach has been an aggressive early mover and a pioneer in the affordable luxury segment in China, profiting in this region despite many other International luxury brands taking measures, such as dropping prices, to spur their sales.
Coach acquired the domestic retail businesses from its distributors in Hong Kong, Macau, and mainland China (Greater China) in Fiscal 2009. Coach has since gone from strength to strength, expanding aggressively in the region, and being rewarded by the achievement of strong growth. The company has been relatively immune to the anti-corruption crackdown that has hurt other Western brands, due to its comparatively less expensive products.
Coach has also been adept at the use of its digital marketing, building strong connections with Chinese consumers, and keeping them updated with the new store openings and the latest collections. The company also uses brand ambassadors such as Chinese-American actor and pop star Wang Lee-Hom. According to The Digital IQ Index: Luxury China 2016 [1], Coach has the third best digital strategy in China. It has been calculated using a methodology that analyzes brands’ websites, e-commerce, digital marketing, social media, and mobile presence. While the majority of brands have ‘average’ or worse China digital strategies, Coach is one of the four brands termed as ‘genius,’ implying that their creatively engineered messaging reaches consumers on a variety of devices and in numerous online areas.
Chinese consumers have become a great force in the global luxury market. China is poised to become the second largest luxury market by 2019, according to Euromonitor, and the Chinese, the biggest spenders on luxury goods worldwide, now account for 30%-50% of global luxury sales, with 80% of their purchases made abroad. Luxury brands rode the China wave until the slowdown in the economy and the anti-corruption campaign brought the industry growth to a halt. A devalued Yuan has diverted the spending from the U.S. to Europe, South Korea, and Japan. In Europe, Chinese tax-free purchases of luxury goods increased 64% in 2015, thanks to the weak Euro [2], while in South Korea and Japan luxury spending by Chinese tourists has surged over 200% in the last year. Meanwhile, the domestic luxury market grew a measly 2% in 2015, after double digit growth rates seen during 2010 – 2012. Luxury brands are being forced online as that is the next big source of growth in the country. While online is still in a nascent stage, it is growing rapidly. Accounted for just 5% of the Chinese domestic luxury sales, online luxury sales grew 20% in 2015, outpacing the overall market by nearly three times. Fashion brands have increased their presence on e-commerce websites and Tmall flagship stores. After a disappointing start on Tmall that fizzled out within a month of its opening, Coach reopened its Tmall store in September 2015. And with the luxury market set to grow at high rates in the future, growing by ~52% over the next five years, Coach is placed in an excellent position to take advantage of the luxury spending by Chinese consumers.
Have more questions on Coach? See the links below:
- How Did the Different Segments Of Coach Perform In Q3 2016?
- How Has The Transformation Plan Affected Coach’s North American Retail Store Count?
- Coach Q3 2016 Earnings And Revenue Beats Expectations
- What To Expect From Coach In Q3 FY 2016?
- Is Coach’s Transformation Plan Working?
- What Is The Breakdown Of The Charges Associated With Coach’s Transformation Plan?
- What is Coach’s Revenue And EBITDA Breakdown?
- Coach: Year 2015 In Review
- How Has Coach’s Revenue And EBITDA Composition Changed In The Last 3 Years?
- Is The Men’s Segment Becoming Big Business For Coach?
- By What Percentage Did Coach’s Revenue & EBITDA Decline In The Last 3 Years?
- How Will Coach’s Revenue And EBITDA Change In The Next 3 Years?
- What Is Coach’s Fundamental Value Based On Expected 2016 Results?
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Notes:
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