 Style and substance, Coach commits to China
By Lillian Liu (China Daily)
Updated: 2008-07-01 08:01 Lin Huijuan has 45 handbags in her handbag closet. She is going to get one more because none of the bags match her new Prada shoes. Elegantly dressed marketing manager Lin, 37, said she wouldn't consider herself a fashion and accessories spendthrift compared to many other women of her age in Shenzhen, where she lives and works for a business consulting firm. "Handbags are the ultimate status symbols in modern life, and I would like to have prestigious branded bags. They also carry my status, and they have to match my clothes and shoes of course," she said. The Chinese fashion and accessory market recorded double-digital growth annually over the last five years as consumers are increasingly becoming preoccupied with the trappings of wealth. US luxury handbag maker Coach Inc aims to fuel that growth by opening 50 more stores in five years in China.
It expects China to become the company's third largest growth driver betting on a growing number of middle-class female shoppers seeking fashion accessories that carry social status. The New York-based group, which competes with its European rivals in China, is facing a tough economic climate in its home market where consumers are trimming spending amid the soaring gasoline and food prices. Coach will expand its sales network in China from nearly 30 stores to 80 by 2013; the country has the potential to quickly become the third major market for the company following North America and Japan, Chief Executive Lew Frankfort told China Daily in an interview. He declined to comment on how much the expansion will cost Coach, but said the company was aiming to be one of the top three imported handbag and accessory brands in China by 2013. "And we are targeting global annual sales to reach $250 million in five years, up from currently $30 million," said Frankfort. He expects sales from China to contribute 5 percent of the company's turnover by then, rather than the current 1 percent. To propel its local presence and better facilitate its sales in the promising market, Coach acquired its own retail business on the mainland, Hong Kong and Macao from current distributor Imagine X group. Frankfort said the acquisition would allow the Coach team to focus on brand-building and direct management of the front end of the retail business where it directly touches the consumer. The company's expansion plan also includes the enhancement of manufacturing bases, which is also an effective way to lower business costs. Reduction in costs Frankfort said rising labor costs in China, the world's fastest growing economy and where the vast majority of Coach bags are made, may cause the group to subcontract more manufacturing jobs to Vietnam and India. "We are striving to make our existing manufacturing base more efficient to offset significant labor cost. We are also expanding into northern China where costs are more affordable, and expanding production in India, and beginning production in Vietnam," he said. China will continue to be an important manufacturing base for handbag makers, Frankfort said, because the "vast majority of our bags are made in the country, which boasts large numbers of skillful manufacturing workers and they make good quality products". He said India is the next frontier after China, but infrastructure problems there prevented the company from developing immediate plans to enter the market, while Vietnam features cheap labor costs but "is not as efficient". The lower cost handbags are expected to be more attractive to customers than their European peers. More accessible handbags "We make our products in lower-cost countries, but the raw material comes from the finest mills and tanneries in the world," said Frankfort. "We provide Chinese customers with an alternative to the European luxury brands." Coach handbags retail for up to $1,100, but many are sold for half of Louis Vuitton. China, the world's third biggest consumer of high-end fashion, is buying more than $2 billion worth of upscale products a year, a figure that could top $11.5 billion as the world's top brands grow in the market, said Ernst & Young in a report. The US group hopes to take a 10 percent share of China's premium handbag and accessories market in 2013, up from 3 percent now. Target customers The primary focus of Coach is 25 to 35-year-old well-educated and well-paid Chinese females. "We are targeting young female professionals who received university education and tend to travel more and have an appetite for luxury handbags," said Frankfort, adding that those shoppers are likely to become brand-loyal. "Coach handbags are not as prestigious as some brands. They use lower-graded leather than Louis Vuitton, but they are more international and boast very good quality," Jessica Lam, a Hong Kong-based legal consultant and luxury handbag fan told China Daily. Customers in the US, the home market of Coach, may be more difficult to lure. The recent US slowdown has taken a toll on parts of the luxury sector. This has resulted in narrowed sales growth for companies such as Gucci and Bulgari over the last few months. Frankfort said the group, which is still recording double-digit sales growth, has felt the pinch of the weakened economy, but would strive to excite US customers. (China Daily 07/01/2008 page15) |
