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Purse Wars: Coach Seeing Fierce Competition For Market Share

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Analyzing the luxury handbags industry

Coach, Inc. (COH) competes in a number of retail segments including handbags, other leather goods, jewelry, accessories, watches, and eyewear. Competition is fierce in all of these segments. And, there are many players. As a result, firms have limited pricing power—the consumer knows best. Staying abreast of fashion trends is critical, as consumers are both brand and fashion conscious.

Products that are generally above average in price are considered “affordable luxuries.” Handbags are the core product category for Coach, accounting for 55% of net sales in fiscal year 2014.[1. Fiscal year ending June 28, 2014] In this category, Coach’s nearest competitors include Michael Kors (KORS), Kate Spade (KATE), Ralph Lauren (RL), Tory Burch, and Marc by Marc Jacobs.

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Market share

Coach is a pioneer of the American affordable luxury industry. Yet despite the fact that the handbags and accessories market is growing in the high-single digits, Coach’s market share is steadily eroding.

New entrants Michael Kors (KORS), Kate Spade (KATE), and Tory Burch are cutting in on the company’s market share. In fiscal 2014, Coach had an estimated 23% share of the North American bags and accessories market. That’s down from over 35% in fiscal 2008.

Same-store sales

Same-store sales are declining for Coach but they’re rising for KORS and KATE. That’s puzzling in a category that’s growing faster than the overall retail sector. Coach appears to have missed several fashion and pricing calls over the past few years.

Another possible cause of declining same-store sales is the move toward cheaper products in the aftermath of the Great Recession of 2008. While this may have made products more affordable for consumers, the loss of brand value may outweigh any sales benefits. We’ll see how the company’s addressing these issues in Parts 13 to 15 of this series.

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