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Coach’s Pacific Heights

Having already established a solid Japanese business, the brand is building throughout Asia, particularly in China.

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WWD Milestones issue 09/26/2011

Victor Luis, president of Coach International Retail, is racking up quite a few frequent-flier miles.

He’s making monthly trips to Asia from his base in New York to oversee the American brand’s extensive push into the fast-growing region.

Coach has built up a substantial business in Japan over the last decade and aims to replicate that success story in China and elsewhere in Asia. The accessories giant has 53 stores in Mainland China, and it plans to open another 30 during the course of its current fiscal year, ending June 2012. It also plans to add a smattering of doors in Hong Kong, Macau, Singapore and Malaysia over that same period.

“China is by far the single biggest geographic growth opportunity we have,” said Luis, an executive well acquainted with the region, having lived 15 years on and off in Japan and who most recently was chief executive officer of Coach China and Japan before relocating to New York.

Over the last six years, Coach has acquired full control of its operations in the region by buying out its former partners. In 2005, it ended its relationship with former Japanese partner Sumitomo. A few years later, it bought out Imaginex, its distributor for Hong Kong, Macau and Mainland China. In July, Coach bought out its partner in Singapore, and it will do the same in Malaysia next year.

Luis said Coach’s former partners played an important role in growing the brand, but there are clear advantages to managing these various markets directly.

“We’re integrating all of these markets with our own expertise,” he said.

McKinsey & Co. estimates that Mainland China’s luxury leather goods market was worth about $2.8 billion last year and should grow an average of 20 percent annually over the next five years. Luis explained that the American brand’s “accessible” price positioning below traditional European labels is appealing to China’s fast-growing middle class.

The numbers appear to back up that claim. Coach’s annual sales in China have grown from about $30 million in 2008 to more than $185 million at present. Those figures include the Mainland business as well as Hong Kong and Macau.

Luis said Coach conducts extensive research — even to the point of visiting customers at home — to determine which colors work best and which styles work for their everyday lives.

“We visit their home and see what is going on, which is very interesting,” he said, explaining a few of the brand’s findings. For example, Chinese women are into cross-body bags but want the option to convert them into shoulder bags; zip-around wallets are desirable.

“In China, even more than Japan, consumers carry around a lot of cash,” he said.

He also noted that Chinese consumers are after a quality product but don’t get hung up on the geographic provenance of a bag, which is fortunate for Coach, since it manufactures in China and other countries, including Vietnam and India. Luis said Chinese consumers examine the leather and stitching and care about the craftsmanship that goes into a product, but they are less concerned about where it is made.

“The country of origin is not the determining factor for them,” he observed.

 

Coach, which is growing its men’s business globally as well, sees especially robust potential for this segment in Asia, where Luis said stylish men are looking for affordable, high-quality alternatives to the briefcase.

The executive said the worldwide market for premium handbags and accessories is about $28 billion and that men’s merchandise accounts for about 15 percent of the total. But in Japan, men’s accounts for 20 to 25 percent of the country’s market, while in China it is 35 to 40 percent.

Although they are significantly smaller than China in terms of sheer size, Luis said Singapore and Malaysia present “significant growth” opportunities for the brand. He said Coach’s business in the two countries is worth $50 million at retail.

The house is also looking at new ways to grow its business in Japan, which is sizable, but had started to flatline and took a hit after the March 11 earthquake-tsunami disaster. In August, Coach said fourth-quarter sales in Japan fell 13 percent on a constant-currency basis and declined 2 percent in dollar terms, reflecting the strong yen.

But Luis said the market is recovering relatively quickly.

“I’m feeling optimistic that we’ll be back to pre-earthquake levels in the not-too-distant future, if not already,” he said, adding that sales were close to flat before the disaster.

Coach has 176 stores in Japan, and sales in the market are more than $750 million, he said.

Even though the overall Japanese market for luxury goods is a mature one that has been stagnating in recent years, Luis said he still sees new opportunities in the country, particularly in the men’s arena. Coach is opening men’s-only corners in department stores and renovating some units to feature men’s products.

“We started as a men’s brand,” he said. “In a way, we’re getting back to our roots.”

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