CoolTouch Monitors LLC is a private company based in Southern California that was founded in 2005[1]. CoolTouch Monitors designs and manufactures standalone and 19-inch rack mounted LCD video monitoring products for the Television Broadcast, Film, CCTV and multimedia markets. In late 2007, CoolTouch Monitors introduced its first High Definition LCD monitor that includes MultiFormat, MultiMedia capabilities. The new line of HD LCD's will include features like On-Screen display audio level metering, de-embedded audio from HD-SDI and SD-SDI sources to be monitored from its built-in speakers.

Coach Inc. (NYSE: COH) is a leading retailer of premium handbags and accessories, located primarily in North America and has recently expanded into Asian markets. Basing its image on "affordable luxury," Coach seeks to establish a premium brand that caters to affluent consumers but also provides lower-priced goods to appeal to the demand of middle-class customers. In the luxury good niche market, COH competes against European rivals Louis Vuitton , Gucci, and Prada.

Due to its effective merchandising and brand-building, Coach has boasted high operating margins and increasing popularity within the U.S. and Japan for years, and even in the suffering American economy Coach is one of a few retailers to post an increase in sales from fiscal 2008 to fiscal 2009. COH also intends to take advantage of increasing luxury consumption in China by taking more control of its retail operations there and building its own stores instead of relying on third-party retailers. During Q1 2010, ended September 26, 2009, COH benefited from the successful launch of its new collection, Poppy. [1] As COH continues to develop its ultra-luxury collections, it will share in the recent increase in spending in luxury good markets as the affluent release pent-up spending power from the last year. [2]

Business Overview

Coach is a leading American manufacturer and retailer of leather goods, accessories and apparel for men and women. Coach occupies the affordable luxury segment, which provides high-end merchandise for both high and middle-income consumers. For example, prices for a Coach handbag can range from $298 to $6,000.[3]

Contents
1 Business Overview
1.1 Business Financials
1.1.1 Fiscal Year 2009 (ended June 27, 2009)
1.1.2 Fiscal Year 2010 (ended August 3, 2010)
1.1.3 Fiscal Q1 2011 (ended October 26, 2010)
1.1.4 Fiscal Q2 2011 (ended January 1, 2011)
1.2 Business Segments
1.2.1 Efforts to Combat Recessionary Pressures
1.2.2 Tiered Pricing Structure
1.2.3 Branching into Other Product Categories
1.2.4 International Opportunities
2 Trends and Forces
2.1 Coach Performance Remains Strong Despite Flagging Economy
2.2 Coach Seeks to Take Advantage of China's Growing Affluent Class
2.3 Luxury Image Essential for Sales
3 Competition
4 References
Business Financials
Fiscal Year 2009 (ended June 27, 2009)
Net sales for fiscal 2009 were $3.23 billion, a 1.6% increase from fiscal 2008.[4] The increase may be attributed to the opening of new direct-to-consumer stores in the Chinese market and the favorable currency translation of Japanese sales revenues. .[5] Net Income was $622 million , down from 2008's $742 million.[5] Operating margin was 30.1% for the year, down from 36.1% in fiscal 2008. [5]

Fiscal Year 2010 (ended August 3, 2010)
Net sales rose 12% to $3.61 billion and net income rose 18% to $735 million compared to FY2009.[6] Gross profit rose 13% and gross margin was 73% compared to 71.9% from 2009. Operating income rose 15% and operating margin rose 90 basis points to 31.9%. Notable achievements for 2010 included the first full year of direct operation of stores in China (where sales at retail doubled), the opening of COH's first standalone Men's stores, and expansion into Western Europe[6] This year's growth is strongly attributable to expansion in China, where COH started developing a multi-channel distribution model and is planning to open about 30 new locations next year.[6]

Fiscal Q1 2010 (ended September 26, 2009)

Net sales for fiscal Q1 2010 were $761 million, a 1% increase from fiscal Q1 2009.[7] The increase may be attributed to the successful launch of the its new collection, Poppy, targeted at a younger female demographic.[1]
Net Income was $141 million, down from the prior year's $146 million.[7]
Operating margin was 29.3% for the year, down from 31.0% a year ago. [7]
Fiscal Q2 2010 (ended January 20, 2010)

Compared to Q2 FY2009, net income rose 11% to $240.1 million ($0.75/share).[8]
Net sales also rose 11% to $1.07 billion, compared to Q2 FY2010.[8]
Same store sales increased 3.2% in North America -- the first quarterly increase since Q1FY2009.[8]
Fiscal Q3 2010 (ended March 27,2010)

Net sales were $831 million, a 12% increase from Q3 FY 2010 ($740 million).
Net income was $158 million for the quarter, a 37% increase from Q3 FY 2010 ($115 million).
Fiscal Q4 2010 (ended August 3, 2010)

Net sales were $951 million, which rose 22% from last year.
Net income rose 34% to $196 million.[6]
Fiscal Q1 2011 (ended October 26, 2010)
COH reported sales of $912 million, which is an increase of 20% compared to the same period of last year. Net income as $189 million, which is an increase of 34% from last year. Operating income increased 28% to $286 million and operating margin was 31.3% compared to 29.3% last year. Gross margin also increased to 74.2% compared to 72.3% from last year. During this time period, the company opened 3 new retail stores and 7 factory stores in North America, 2 locations in Japan, and 8 locations in China.[9] COH is especially focusing on global growth as in the next few months, COH plans to open its first regional flagship on New Bond Street in London as well as other locations in France, Spain, and Portugal.[9]


Fiscal Q2 2011 (ended January 1, 2011)
For the quarter, Coach posted net sales of $1.264 billion, an 18.7% increase compared to fiscal Q2 2010.[10]
COH turned its sales growth into operating income of $453 million, a 19% increase compared to fiscal Q2 2010.[10]
The firm especially experienced success during the Holiday Season, in which it realized comparable store sales increase of 12%.[10]
Coach posted net income of $303 million, compared to net income of $241 million in fiscal Q2 2010.[10]
Year (ended June) Operating Revenue (millions) Operating Profit (millions) Operating Margin Net Income (millions) Net Profit Margin N. America Same Store Sales Change
2010[11] $3608 $1150 31.9% $735 27.9% 3.5%
2009 $3,230 $971 30.1% $623 19.3% (6.8%)
2008 $3,180 $1,147 36.1% $783 24.6% 9.8%
2007 $2,612 $993 13.8% $663 25.4% 22.3% [12]
Business Segments
Coach is divided into two main revenue segments:

Direct-to-consumer(84% of Fiscal 2009 sales) consists of retail and factory stores in the United States and Japan, in addition to the Coach website and catalog.[5]
Indirect(16% of fiscal 2009 sales) consists of wholesales to department stores in the United States and Asia.[5]
Efforts to Combat Recessionary Pressures
Although 2008 and 2009 were marked by significant markdowns by retailers desperate to encourage shopping and decrease inventory, Coach managed to maintain its price level and instead sales at its factory stores increased as more consumers sought a bargain. Maintaining price levels and avoiding discounts is essential to COH's image as a near-luxury retailer. In an effort to combat depressed sales prices, Coach has hired Reed Karkoff, the CEO of Prada's USA division to head its new ultra-luxury division. The new segment will consist of apparel and will be sold in a very limited number of independent boutiques. The Reed Krakoff line will not be sold in Coach stores and prices are estimated to range from $495 to $1,195. [13] This new division is an attempt to appeal to luxury customers even though the Coach mainline has slashed prices in response to the recession. Half COH's product offering are priced below $300.[14] In addition, in its most recent quarter Q1 2010, Coach reported margins and profit that was higher than Wall Street expectations, leading Jefferies to upgrade the company to "Buy" status. [15]

Tiered Pricing Structure
Coach’s product is classified as a “luxury” item but is accessible to a larger market due to the variety of price points that COH offers. Analysts have noted that this tiered pricing strategy is not common in the luxury goods industry, which on average has higher entry-level price points than that of Coach. This pricing strategy is very similar to that used by Tiffany (TIF) and other brands in the affordable luxury market. This pricing structure allows COH to attract affluent consumers while also providing lower-income consumers access to a brand they would not be able to afford otherwise.

Branching into Other Product Categories
Handbags are COH's main driver of sales. However, since fiscal year 2006 handbags as a percentage of total sales dropped from 65 to 62%.[5] Accessories as a percentage of total sales increased from 28 to 29%[5] and all other products increased from 7 to 9%.[5] Though small, these changes are evidence of the fact Coach has been attempting to diversify its product offering. During fiscal year 2008, Coach expanded its jewelry line to include sterling silver and gold-plated fashion items. Also, in 2007, COH entered a partnership with a division of Estee Lauder Companies (EL) to produce perfume. During fiscal year 2008 this partnership was expanded to include lip gloss and body lotion.[5]



Handbags are COH's number one product in terms of sales, and the firm's success is dependent on this niche product.
[5]
Note: Accessories includes men's and women's wallets, belts, keychains and watches. Other Products includes footwear, apparel, eyewear and fragrances.

International Opportunities
Coach has an established presence in the U.S. and Japan and is expanding into other Asian markets. Coach has virtually no European presence and has no plans to compete against established brands there.



About 22% of COH's sales come from international markets, especially Japan.
[5]
Japan
Coach, Inc. first entered the Japanese market in 2001. Fiscal 2009 sales were $678 million.[16] In 2009, Japan operations constituted 21% of net sales, up from 19% in 2008. At the end of fiscal 2009 Coach had 155 stores in Japan.[17] Currently, Coach is the #2 highest-selling handbag retailer in the country, though its 8% market share is dwarfed by Louis Vuitton's 28% share.

Other markets
Coach has an aggressive plan in place for expansion within Asia, including China. Macroeconomic downturns in certain parts of Asia thus may have a negative impact on Coach's operations now and going forward. China is expected to be a growth market for this industry with the emergence of a decent-sized middle class there and expected continued economic growth.

Trends and Forces

Coach Performance Remains Strong Despite Flagging Economy


Retailers have had to weather a difficult economic environment during 2008. Many Americans are unsure of their financial security; companies have resorted to laying off workers in an effort to cut costs. In an uncertain economic environment consumers seek to cut costs and save as much money as they can, and clothing is usually the first to go.[18] This decrease in consumer confidence has adversely affected many retailers across all levels, from low-priced brands to luxury stores. Coach, however, has managed to maintain strong sales in a time when its counterparts are struggling to keep consumers buying their products. COH's strong sales are primarily a result of higher sales at factory stores (consumers who want to spend less would be more attracted to discounted merchandise) as well as an especially strong product offering: the Madison line of handbags, which combines a popular design with a lower price point than previous handbags--an effort to provide a high value proposition to its customers.[19] Net sales for the first quarter of fiscal 2009 were $753 million, an 11% increase from the same period last year.[19] Direct-to-consumer sales for the same period rose 16% to $592 million.[19] This good performance allows Coach to enter the holiday season in a much better position than many other retailers that have had to face declining sales.

Coach has since seen a further rebound from the poor 2009 fiscal year as it has seen growth in its income and revenues. Despite having a stagnant first quarter, Coach has posted strong Q2 FY 2010 earnings. Posting an 11% earnings growth of $240.1 million and the first positive same store sales growth number since Q1 FY 2009, Coach stands to grow further as the global economy improves. [8]

Coach Seeks to Take Advantage of China's Growing Affluent Class
Coach has primarily stayed focused in North America and Japan. However, China is becoming an increasingly important market for luxury retailers. The rise of China's middle class has led to an increase in disposable income and thus an increase in potential customers. China spends more than $2 billion a year on luxury products.[20] In addition, by the end of 2006 the country had 345,000 U.S. dollar millionaires, a third of which (115,000) were women.[20] What this means is that there is a growing affluent class in China that is capable of purchasing Coach products across all price points. In March 2008 Coach entered an agreement with ImagineX, its Asian distributor, to acquire 24 retail locations by May 2009.[21] This deal will allow the firm greater control over its Asian operations and allow it to better take advantage of the country's new wealth. Over the next 5 years Coach plans to open a total of 50 retail locations in China and increase its market share from 3 to 10%.[20]

Luxury Image Essential for Sales
As with any luxury or affordable luxury retailer, Coach heavily relies on an image of exclusivity to fuel interest and sales of its products. A luxury company can lose its "luxury" status if the brand becomes too popular or too accessible. Coach thus takes a risk by having factory stores that sell discounted merchandise. None of Coach's competitors, such as Louis Vuitton and Gucci, have factory stores--they would be in direct opposition to the air of exclusivity the brands seek to cultivate. However, Coach protects its luxury status by placing its factory stores at least 60 miles away from its full-price locations.[22] In addition, the factory stores never sell the latest merchandise--they sell last year's or irregular pieces in addition to products that are manufactured specifically for the factory store. Coach never has sales at its full-price stores and does not allow retailers such as Macy's Inc. (M) to discount its merchandise. The result of these actions is that the factory stores and flagship locations serve two different demographics and are separate enough that the factory segment does not tarnish the overall image of the brand.[22]s

Competition

Most of Coach's closest competitors are either privately owned or owned by larger European conglomerates of various luxury brands. Consequently, comparative data is unavailable. This includes Louis Vuitton and Fendi, both owned by LVMH Moet Hennessy L.V. (LVMUY), and Gucci Group.

Coach's business model is chiefly distinguished by its stress on "accessible luxury." This model thus reaches a larger demographic compared to many of Coach's higher-priced competitors, including Louis Vuitton, Gucci, and Prada. These competitors tend to focus on a higher income, high-fashion demographic. Companies like Dooney & Burke and Cole Haan also stress "accessible luxury" and are Coach's most successful competitors; however, Coach's market share has continued to increase in their presence.

Coach's broad appeal and high volume, well-scaled operations allow it to maintain operating margins at 30.1% in 2009.[23] This margin is high compared to other luxury companies such as the fashion and leather goods division of LVMH Moet Hennessy L.V. (LVMUY), whose operating margin in 2009 was 18.5%.[24]
 
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