Coach is a big name when it comes to luxury handbags. The American firm is on a par with other firms in the apparel and accessories sector including Polo Ralph Lauren and Ann Taylor. It even competes with the likes of Louis Vuitton and Prada.
Most of Coach’s revenues come from its luxury handbag segment. This division adds over 50 percent to the company’s stock value. However, following a record high of 40 percent in 2007, Coach‘s profit margin from handbags has been falling steadily. Several factors fuelled this fall in profit margins. The recession was a major cause because it compelled the company to increase promotions and drop prices in a bid to persuade consumer spending. Other retailers who stocked Coach’s designer handbags began to form a lower proportion of the US company’s revenues. And then there were the rising costs of running stores in US, China and Japan. All in all, it has been a tough period for the company.
Although estimates suggest that Coach’s profit margins from its handbags will increase, this will now be a slow process because the company is focusing on its own stores as a priority now. Another factor that has been pushing down profits is the increasing costs of labor in China. So Coach will be looking to shift some of its production divisions to cheaper areas like India and Vietnam.
Also, the company will be focusing more on emerging markets like China where it has experienced growth in the double digits. Coach estimates that its business in China will grow to $500 million by 2014.