Companies

Coach is riding wave of growth in middle class

By Zhou Yan (China Daily)
Updated: 2010-12-07 10:20

Coach Inc expects year-on-year sales growth of 75 percent in its 2011 fiscal year in China. [Photo/China Daily]

US luxury handbag retailer expectssales in China to jump 75% in 2011

SHANGHAI - The growing self-indulgence of China's middle class has proved a boon to Coach Inc, the largest maker of luxury leather handbags in the United States, leading it to expect 75 percent year-on-year sales growth in its 2011 fiscal year in China.

The New York-based retailer is planning to open stores at 25 locations in China in the fiscal year 2011, which ends in July, making a total of 65 Chinese stores, Lew Frankfort, chairman and chief executive officer of Coach, told China Daily on Monday.

In fiscal 2010, Coach saw robust growth in China, with comparable store sales rising at a "double-digit" rate, according to its annual financial report. That compared with a 6.3 percent sales increase in the US.

Given its late entry in the Chinese market, however, the US handbag retailer captured only about 5 percent of China's luxury market, in which total spending reached 156 billion yuan ($23.27 billion) in 2009, according to the research firm Bain & Company.

"In China, our brand awareness is still very low, around 8 percent. We're playing catch-up," Frankfort said.

China is expected to eclipse Japan within five years as Coach's second-largest market after the US, he said.

Japan accounted for $700 million of its sales in fiscal 2010, compared with $175 million in China. "I hope China will soon outdo Japan," Frankfort said.

In October, Coach said that the next phase of its international-growth strategy will focus on Asia, after its high-profile entry to the European market, including the United Kingdom, Spain, Ireland and Portugal.

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In keeping with its Asia-focused strategy, the self-deemed "accessible luxury brand" appointed Jonathan Seliger - for five years the managing director of Alfred Dunhill China under the Richemont Group - president and chief executive officer of Coach China, based in Shanghai, in a bid to enhance the firm's competitive edge.

Many of the leading luxury brands have bet on China, a nation experiencing an exponential increase in the middle class, as their main business growth engine. Luxury brands - including Louis Vuitton, Ermenegildo Zegna and Coach - opened flagship stores in Shanghai this year, making the city a fierce retail battleground.

"The performance of our Shanghai flagship store (opened in April) exceeded our expectations," Frankfort said.

China's middle class is estimated to reach 700 million by 2020, making up 48 percent of the nation's population, according to Euromonitor International, a market research firm. Meanwhile, its annual income may climb to an average of $17,700 in the next 10 years.

"As the middle class grows rapidly, consumer spending will increase. China will become the world's largest luxury market, but it's still at an early stage today," Frankfort said.

He also said that Coach plans to launch its e-commerce website in China in mid-2011 as a marketing vehicle.