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Coach Outperforms Rivals In E-commerce

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E-commerce sales and luxury retail

E-commerce is currently one of the most important growth drivers for all retailers, and it will continue to be well into the future. As a category, e-commerce sales are growing faster than overall retail (XRT) sales. They grew from 4% of retail sales in 3Q 2009 to 6.6% of retail sales in 3Q 2014.[1. U.S. Census Bureau]

This trend is particularly relevant for premium products. Brand image on social media sites like Pinterest and YouTube can deeply influence consumers. A 2013 McKinsey & Company study estimated that ~52% of US customers researched luxury products online before purchasing.

 

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E-commerce pioneer

Coach, Inc. (COH) was one of the first luxury brands in the US to go online. It’s also ranked among the top luxury brands available online. The company currently operates e-commerce websites in the US, Canada, Japan, and China. It has an invitation-only Internet outlet sales site. Coach also operates informational websites in 25 countries—notably Australia, Saudi Arabia, the United Arab Emirates, and the United Kingdom.

It’s unlikely that Coach’s sales will be cannibalized by other online retailers. Why?

  1. The company has had a well-developed e-commerce presence for several years now, especially in the key markets of US, Japan, and China.
  2. It’s a vertically integrated company, with control over its own manufacturing and distribution.

Coach has its own in-house market research capabilities to gauge customer trends and preferences through its websites. Integrating big data, marketing channels, social media, and analytics is a big part of its e-commerce strategy. For more on marketing, read Part 4 of this series.

E-commerce traffic and sales

The company doesn’t specifically disclose e-commerce sales. E-commerce sales in North America were in the neighborhood of ~$0.5 billion in fiscal 2014,[1. Fiscal year ending June 28, 2014] or ~15% of North America revenues.[1. fiscal 14 earnings call transcript] That’s up from $82 million in fiscal 2007. Online traffic to Coach’s websites has also been on the rise—from 50 million visitors in fiscal 2007, to 76 million visitors in fiscal 2014.

Coach also enjoys an advantage over fast-growing rival Michael Kors (KORS) in e-commerce. While KORS enjoys immense popularity online, KORS’s website was, until 2014, operated by Neiman Marcus. A significant ramp-up in its infrastructure may be needed for KORS to optimize this channel.

Michael Kors (KORS), Kate Spade (KATE), and Ralph Lauren (RL) also don’t have a direct e-commerce presence in China, the world’s largest e-commerce market. This will hinder these companies from leveraging online brand popularity into sales.

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