By  on March 10, 2005

NEW YORK — There’s another legal war in the fashion world.On Wednesday, Manhattan-based Coach filed a complaint against French luxury goods conglomerate LVMH Moët Hennessy Louis Vuitton with the Japanese Fair Trade Commission. Coach alleged that, throughout the past year, LVMH has repeatedly practiced foul play and engaged in anticompetitive measures.Specific details of the complaint could not be made public in compliance with Japanese law, but Coach alleged in a statement that LVMH has been actively trying to coerce Japanese department stores into dropping Coach by threatening to stop developing Louis Vuitton in those stores.The two leather goods giants have enough financial clout and retail muscle to turn the battle into an all-out war that could spill over to department stores worldwide.“We cannot accept being subjected to anticompetitive practices aimed at limiting our ability to freely offer Coach in the marketplace,” Lew Frankfort, chairman and chief executive officer of Coach Inc., said in a statement. “It is not the way we do business and is contrary to our principles of fair play.”Reached in Paris late Wednesday, an LVMH spokesman had no comment on the Coach complaint.But LVMH is not one to take such cases lying down. The French conglomerate remains locked in a long-running lawsuit against financial giant Morgan Stanley over what it claims were biased reports written by the bank’s luxury goods analyst, Claire Kent. Louis Vuitton is the top imported accessories brand in Japan, but Coach has said that it recently eclipsed Prada and Gucci and is now number two behind Louis Vuitton. In Japan, Coach has had a 40 percent compound annual growth rate at retail over the last four years and the country represented about 21 percent of Coach’s total sales in fiscal 2004, which were $1.32 billion.It comes as no surprise that LVMH chairman Bernard Arnault is sitting up and taking notice. In fact, it is widely believed Arnault keeps a close eye on the success of Coach in America and in Japan, and he is said to often bring it up in strategy meetings. When Frankfort and Antonio Belloni, LVMH’s group managing director, were seen huddling at the Milan Fashion Summit, which was cosponsored by Merrill Lynch and the Wall Street Journal last year, the rumor mill went into overdrive with speculation ranging from LVMH looking to acquire Coach, or the two parties possibly cooking up a distribution deal to build Coach’s presence in Europe and Asia. Given the complaint, it seems likely they touched on the subject of Japan and LVMH’s actions there.Interestingly, while Louis Vuitton is clearly considered a luxury brand, Coach positions itself as an accessible luxury brand with price points typically less than half those of Vuitton.“We have always welcomed strong competition in the marketplace, because it drives category growth by giving consumers a wider range of viable choices,” Frankfort said in the statement. “Business practices which artificially inhibit competition through threats and harassment have no place in the market.”Although details can’t be divulged and Coach wouldn’t disclose stores that were threatened, the complaint outlines a number of instances of LVMH’s actions. In Japan, Coach sells to such department stores as Takashimaya, Sogo, Isetan and Mitsukoshi“As a company, Coach focuses on every single consumer, every single product and every single store, individually,” Frankfort said in the statement. “We view ourselves as a small company with large sales — that’s who we are and how we work. Any unfair action to deny our consumers’ right to choose and separate us from our business partners is unacceptable and we plan to fight this behavior vigorously.”The investigation is likely to take several months. In the statement, Coach stressed that LVMH’s actions have had no material impact on Coach sales in Japan. “While the economic impact of this pattern of behavior has not been material, a delay or deferral of even a single expansion of a shop due to anticompetitive practices is unacceptable,” Frankfort said. Coach’s growth has skyrocketed over the last few years and no slowdown in its growth appears to be ahead. Just last Thursday, the company increased its second-half forecast because of strong spring season results that are trending above plan. Coach estimated sales of at least $800 million for that period. It also updated full-year fiscal 2005 forecasts, projecting sales of more than $1.67 billion. In Japan, it expects a 27 percent increase in sales in the second half in constant currency with at least midsingle-digit sales growth.The Japanese market is of particular importance to Coach’s growth strategy. The company formed a joint venture with Sumitomo Corp. in 2001 to help expand the brand in the Japanese market and operates a multichannel distribution there. It has become the fastest-growing imported accessories and handbag brand in Japan, leading the firm to accelerate its flagship openings. By Dec. 31, there were six flagships in Japan: in Tokyo in Ginza, Shibuya and Marounichi, and outside Tokyo in Osaka, Sapporo and Sendai. By the end of last year, Coach had 107 sales points in Japan, of which 105 were run by Coach Japan Inc. Of those, 79 were department store shop-in-shops; 16 were retail stores, of which six are flagships, and 10 were factory stores. With more flagships, department store sales have somewhat diminished in Japan as a result. The department store channel represents about two-thirds of sales in Japan, down from about 80 percent two years ago.“Regardless of the outcome [of the JFTC’s investigation], we’re confident that we will continue to deliver exceptional results,” Frankfort said. “We are a broad-based, multinational and multichannel enterprise and our opportunities for growth are abundant. Within Japan, we have a multichannel business which is being fueled first and foremost by flagships and new retail stores and secondarily by new department store shops and expansions. The vibrancy of our brand in Japan has never been stronger and our outlook has never been brighter.” 

To continue reading this article...

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus