Penetration of the Italian Market??

Submitted to: Dr. Charles Rader

By: Joe Student

Marketing 620 – Fall 2008

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 Coach Leatherware - Penetration of the Italian Market?

Introduction and Brief History

Coach Leatherware was founded in 1941 in a New York City Loft as a family-run

workshop that incorporated skills that were handed down from generation to generation to

produce leather goods. Customers quickly took note of the outstanding quality of Coach

products. Coach has continuously evolved into not only a nationwide company but also exists in

other countries across the world. Coach is still known for its unique craftsmanship and high

regard for quality. During the last decade Coach has come to be known as the one of the world’s

most prestigious producers of leather products including: handbags, business cases, luggage,

travel accessories, wallets, outerwear, eyewear, gloves, scarves, fragrance and fine jewelry.

Coach designs products for both men and women. With its licensing partners, Coach also offers

watches, footwear, and office furniture. There is no mistake that the fine quality of Coach’s

products continue to exceed consumer’s expectations.

Coach incorporates a multi-channel distribution strategy. Coach has approximately 400

stores across the United States and Canada, with current plans for global expansion. Coach’s

current geographic sales mix is as follows: The United States represents approximately 75%,

Japan represents approximately 19%, and other countries represent approximately 6%. Coach

can also be found in many department stores across the world. Coach launched its website in

1999 and continues to serve many customers via the World Wide Web. Coach also realizes sales

through its catalogue, both domestically and abroad.

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 Coach’s long term strategic plan is to increase international sales. Coach is currently

exists in a total of 24 countries. Most recently Coach has targeted the Japanese market with

much noted success. Coach Japan, Inc. is wholly owned by Coach and has given Coach the

opportunity to maintain control of distribution in Japan. Coach’s intentions are to maintain a

consistent brand strategy both domestically and abroad. Coach is currently searching for areas

with significant growth opportunity. This leads to the question: Should Coach Leatherware

penetrate the Italian market?

Industry Analysis

Beings that handbags represent approximately 62% of Coach’s sales mix by product

category, this research will focus on that area. In 2007, the 7 billion dollar United States market

for designer handbags was named as the fastest growing product in the fashion industry. Women

across the country were paying hundreds of dollars for handbags. However, early in 2008, as the

United States embarked on the economic crisis that still plagues the markets today, handbag

sales started to decline in number. Will all of the uncertainties that exist in today’s market it is

almost impossible to project future sales of designer handbags. Economist and financial analyst

feel that sales in the handbag industry will continue decline as the general market conditions

weaken, as purchases of such luxurious items then to be positively correlated with the market.

The upside of this fact is that sales are expected to regain growth patterns once market conditions

begin to move in a positive direction.

Considering the tough economic conditions that face the global economy, Coach

performed quite impressively in its 2008 fiscal year. The company was able to realize a 20%

increase in United States sales and gained a 13% market share in Japan. Total sales rose sales

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rose 22% to $3.18 billion in the fiscal year 2008 while operating income rose 19% to $1.18

billion. In this year 38 new stores were added including 13 in new markets.

Although handbags are still the fastest growing sector of the United States fashion

industry, it appears as though shoe and jewelry sales are strong competitors. Competition in the

handbag industry is immense. Not only does Coach have to compete with an increasing number

of strong competitors including Louis Vuitton, Gucci, and Prada, but the company also has to

fight the effects of the growing number of counterfeit handbags that exists.

Coach is continuing to strive on its strategy to target international consumers. By

expanding international relations, Coach hopes to continue to maintain a profit margin that is

several times higher than that of its main competitors. Coach has achieved this heightened profit

margin by taking advantage of economies of scale through longer production runs and lower-cost

production facilities in developing countries such as China and the Dominican Republic.

Italy – Demographic and Economic Analysis

Italy has the fifth largest population density in Europe equaling approximately 490

persons per square mile. Italy has a population of more than 59.5 million individuals representing

the fourth largest population in the European Union, and the 23rd largest population in the word.

The most populated city in Italy is Rome while the least populated is Morterone. The official

and common language is Italian while there are many recognized minority language groups. The

age structure is as follows: 0-14 years represents 14.07% of the population, 15-64 years

represents 66.5% of the population, and 65 years and older represents 19.94% of the population.

The median age for a male is 40.7 years and for a female is 43.7 years.

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 Italy has a diversified industrial economy divided into a developed industrial north,

dominated by private companies, and a less developed agricultural south, with 20%

unemployment. Italy maintains a tight fiscal policy in order to meet requirements of the

Economic and Monetary Unions and has benefited from lower interest rates and inflation rates.

Italy is now ranked as the world’s fifth-largest industrial economy. Italy is currently in an

economic recovery stage and is catching up to its west European neighbors. It is important to

note that the United States and Italy cooperate closely on major economic issues. The currency

in Italy is the Euro which currently converts to 1.2619 American dollars.

Analysis of Italian Fashion and Handbag Industry

Fashion is held to a very high degree in Italy. Italy is known for producing some of the

most luxurious high end fashion items. Women in Italy are very involved in fashion and are

constantly evolving their style. Many of the worlds’ most well known handbag designers have

opened stores in Italy. The Centre for the Promotion of Imports from Developing Companies,

CBI, shows that handbag sales in Italy have continued to grow as fashion becomes more and

more an important part of the purchasing decisions of consumers. Coach must consider, among

other factors, government and tax regulations, cultural barriers, and competition while analyzing

the potential penetration into the Italian market. While Italy is one of the 27 members of the

European Union, the United States and Italy maintain a strong economic relationship. The

European Union as a whole unit is the largest merchandise trading partner of the United States.

Economist expect this relationship to grown in importance as the world moves towards

globalization and trade and investment barriers continue to fall.

The tax structure in Italy has come under much criticism in recent years and has been

blamed for economic inefficiencies within the country. Italy has been known for its high tax

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burden; however structural reform is underway in attempt to lighten the tax burden. Cultural

barriers must also be considered. Italian businesses are primarily owned by individuals and

families. Business is preferably transacted with people with which one is familiar. Italian

decision-making is done behind the scenes. Although women have entered the workforce, their

numbers are still small and few are in upper echelon positions. Italian household are the sole

domain of women; Italian women for the most part cook, clean and care for the children.

Italians place a huge importance on material possessions. Looking good is of number one

importance to many Italians. It has been noted that the greatest cultural difference between

Italy and the United States is the uncertainty avoidance level. Italians seem to have a great fear

of the unknown and prefer doing business with those that they know.

Another area that must be analyzed is that of competitors. Many handbags are being

exported, from other counties, to Italy and sold through department stores. More than 700

million handbags are sold per year in Italy. This strong desire for high fashioned items among

Italian women has heightened competition in this industry. In order to be successful and realize

profits Coach will be required to create strong brand awareness. Louis Vuitton has remained one

of Coach’s largest competitors in the handbag industry. Louis Vuitton has successfully

expanded its operations into the Italian market. Coach has been able to maintain a competitive

edge over Louis Vuitton with its competitive pricing. If in fact Coach expands its operations into

the Italian market the company will need to spread brand awareness as a high end producer of

designer handbags with prices less than that of its closest competitors.

SWOT Analysis

The objective of Coach is to increase international business in order to increase profits of

the company and to remain competitive in the worlds’ global market place. Should Coach

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penetrate the Italian market? A SWOT analysis will be performed to build a framework that can
be used to evaluate and facilitate the decision making process.
Coach Leatherware – Penetration of the Handbag Industry in Italy??
STRENGHTS (Internal)

Competitive Pricing

Longer production runs

Low cost production facilities

Experienced management

Began as a family business – important
to Italian consumers

Noted quality

Multi-channel distribution strategy
OPPORTUNITIES (External)

Penetrate the Italian Market – strategic
plan of the company is to increase
international sales

The handbag industry is the fastest
growing product in the fashion industry

Italy has the 5th largest population
density in Europe

15-64 year olds represent 66.5% of the
population

Median age of a woman is 43.7 years

Low interest rates and inflation rates in
Italy

Fashion held to VERY high degree in
Italy, especially among women who are
purchasers of handbags

Strong economic relationship between
United States and Italy
WEAKNESSES (Internal)

Nearly 2/3 of sales are dependent on 1
industry – the handbag industry

High start up cost due to expanding into
new countries

May have to take on debt to finance
operations in a time that credit markets
are tight

Relatively new at expanding globally –
not experienced
THREATS (External)

Unstable current economic conditions
that exists globally

During 2008 handbag sales in general
saw a decline in sales

Strong competition in the shoe and
jewelry market evolving

Counterfeit handbags

High tax burden in Italy

Cultural barriers

Strongest competitor, Louis Vuitton,
has already successfully expanded
operations into the Italian market
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Conclusion

After analyzing the handbag industry, the key economic indicators of the Italian market,

and preparing a SWOT analysis on the company, it has been determined that Coach Leatherware

should continue its global expansion into Italy. Coach has a notable opportunity to capitalize on

the importance that Italian consumers place on high priced, material fashion items. Coach,

through its expansion in Japan and other countries, has already proven that it has the ability to

undergo expanding into foreign countries. Coach will face a high degree of competition in this

industry in the country of Italy but will be able to continue to realize annual growths in profit

through its competitive pricing strategies. By Coach Leatherware expanding to Italy, it will

continue to build brand awareness as a compelling force in the handbag industry.

REFERENCES

www.academickids.com

www.cbi.eu/marketinfo.com

www.cencus.gov

www.coach.com

www.ocregister.com

www.standardandpoors.com