George Washington University Coach Inc & Starbucks Management Case Studies

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I will attach two case studies. The first case study is Starbucks. At the end of the Starbucks case, there are seven questions that I need help with. The questions are pretty straightforward.

The second case study is Coach. The questions that I need help with are the following:

1. Is its advantage in Luxury Handbags Sustainable? and Identify and write the main issues found discussed in the case (who, what, how, where, and when (the critical facts in a case).

2. List all indicators (including stated "problems") that something is not as expected or as desired.

3. Briefly analyze the issue with theories found in academic materials. Decide which ideas, models, and

theories seem useful. Apply these conceptual tools to the situation. As new information is revealed, cycle back to sub-steps.

4. Identify the areas that need improvement (Use theories from academic materials).

Please read both cases and answer all questions to the best of your abilities.

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Case 5 Coach Inc.: Is Its Advantage in Luxury Handbags Sustainable? John E. Gamble University of South Alabama In the six years following its October 2000 initial public offering (IPO), Coach Inc.s net sales had grown at a compounded annual rate of 26 percent and its stock price had increased by 1,400 percent as a result of a strategy keyed to "accessible" luxury. Coach created the "accessible" luxury category in ladies' handbags and leather accessories by matching key luxury rivals on quality and styling, while beating them on price by 50 percent or more. Not only did Coach's $200-$500 handbags appeal to middle-income consumers wanting a taste of luxury, but affluent consumers with the means to spend $2,000 or more on a handbag regularly snapped up its products as well. By 2006, Coach had become the best-selling brand of ladies' luxury handbags and leather accessories in the United States with a 25 percent market share and was the second best-selling brand of such products in Japan with an 8 percent market share. Beyond its winning combination of styling, quality, and pricing, the attractiveness of Coach retail stores and the high levels of customer service provided by its employees contributed to its competitive advantage. Much of the company's growth in net sales was attributable to its rapid growth in company-owned stores in the United States and Japan. Coach stores ranged from prominent flagship stores on Rodeo Drive and Madison Avenue to factory outlet stores. In fact, Coach's factory stores had achieved higher comparable store growth during 2005 and 2006 than its full-price stores. At year-end 2006, comparable store sales in Coach factory stores had increased by 31.9 percent since year-end 2005, while comparable store sales for Coach full price stores experienced a 12.3 percent year-over-year increase. In 2006, Coach products were sold in 218 full-price company-owned stores, 86 factory stores, 900 U.S. department stores, 118 locations in Japan, and 108 international locations outside Japan. Going into 2007, the company's executives expected to sustain its impressive growth through monthly introductions of fresh new handbag designs and the addition of retail locations in the United States, Japan, and rapidly growing luxury goods markets in Asia. The company planned to add three to five factory stores per year to eventually reach 105 Copyright 2006 by John E. Gamble. All rights reserved. 283 284 Case Group A Market Opportunity Analysis stores in the United States, add 30 full-price stores per year in the United States to reach 300, and add at least 10 stores per year in Japan to reach as many as 180 stores. The company also expected its licensed international distributors to open new locations in Hong Kong and mainland China. Other growth initiatives included strategic alliances to bring the Coach brand to such additional luxury categories as women's knitwear and fragrances Only time would tell if Coach's growth could be sustained and its advantage would hold in the face of new accessible luxury lines recently launched by such industry elites as Giorgio Armani, Dolce & Gabbana, and Gianni Versace. COMPANY HISTORY Coach was founded in 1941 when Miles Cahn, a New York City leather artisan, began producing ladies' handbags. The handbags crafted by Cahn and his family in their SoHo loft were simple in style and extremely resilient to wear and tear. Coach's classic styling and sturdy construction proved popular with discriminating consumers and the company's initial line of 12 unlined leather bags soon developed a loyal following. Over the next 40 years, Coach was able to grow at a steady rate by setting prices about 50 percent lower than those of more luxurious brands, adding new models, and establishing accounts with retailers such as Bloomingdale's and Saks Fifth Avenue. The Cahn family also opened company-owned stores that sold Coach handbags and leather accessories. After 44 years of family management, Coach was sold to the diversified food and consumer goods producer, Sara Lee. Sara Lee's 1985 acquisition of Coach left the handbag manufacturer's strategy and approach to operations more or less intact. The company continued to build a strong rep utation for long-lasting, classic handbags. However, by the mid-1990s, the company's per. formance began to decline as consumers developed a stronger preference for stylish French and Italian designer brands such as Gucci, Prada, Louis Vuitton, Dolce & Gabbana, and Ferragamo. By 1995, annual sales growth in Coach's best-performing stores fell from 40 percent to 5 percent as the company 's traditional leather bags fell out of favor with consumers. In 1996, Sara Lee made 18-year Coach veteran Lew Frankfort head of its listless handbag division. Frankfort's first move was to hire Reed Krakoff, a top Tommy Hilfiger designer. as Coach's new creative director. Krakoff believed new products should be basedupon market research rather than designers' instincts about what would sell. Under Krakoff, Coach conducted extensive consumer surveys and held focus groups to ask customers aboul styling, comfort, and functionality preferences. The company's research found consumers were looking for edgier styling, softer leathers, and leather-trimmed fabric handbags. Once prototypes had been developed by a team of designers, merchandisers, and sourcing specialists, hundreds of previous customers were asked to rate prototype designs against existing handbags. The prototypes that made it to production were then tested in selected Coach stores for six months before a launch was announced. The design process developed by Krakoff also allowed Coach to launch new collections every month. Prior to his arrival, Coach introduced only two collections per year Frankfort's turnaround plan also included a redesign of the company's flagship stores t0 complement Coach's contemporary new designs. Frankfort abandoned the stores' previous dark, wood paneled interiors in favor of minimalist architectural features that provided a bright and airy ambiance. The company also improved the appearance of its factory stores which carried test models, discontinued models, and special lines that sold at discounts ranging from 15 percent to 50 percent. Such discounts were made possible by the companys policy of outsourcing production to 40 suppliers in 15 countries. The outsourcing agret ments allowed Coach to maintain a sizeable pricing advantage relative to other luxur Case Five Coach Inc.: Is lis Advantage in Luxury Handbags Sustainable? 285 handbag brands in its full price stores as well. Handbags sold in Coach full-price stores ranged from $200-$500, which was well below the $700-S800 entry-level price charged by other luxury brands. Coach's attractive pricing enabled it to appeal to consumers who would not normally consider luxury brands, while the quality and styling of its products were sufficient to satisfy traditional luxury consumers. In fact, a Women's Wear Daily survey found that Coach's quality, styling, and value mix was so powerful that affluent women in the United States ranked Coach ahead of much more expensive luxury brands such as Hermes, Ralph Lauren, Prada, and Fendi. By 2000, the changes to Coach's strategy and operations allowed the brand to build a sizable lead in the "accessible luxury" segment of the leather handbags and accessories industry and made it a solid performer in Sara Lee's business lineup. With the turnaround sucessfully executed, Sara Lee management elected to spin off Coach through an IPO in October 2000 as part of a restructuring initiative designed to focus the corporation on food and beverages. Coach Inc.'s performance proved to be stellar as an independent, public company. The company's annual sales had increased from $500 million in 1999 to more than $2.1 billion in 2006. Its earnings over the same timeframe improved from approximately S16.7 million to $494 million. By late 2006, Coach Inc.'s share price had increased nearly 15 times from the 2000 IPO price. Exhibit presents income statements for Coach Inc. for fiscal 1999 through fiscal 2006. Its balance sheets for fiscal 2005 and fiscal 2006 are presented in Exhibit 2. Coach's market performance between its October 2000 IPO date and December 2006 is presented in Exhibit 3. 1 OVERVIEW OF THE GLOBAL LUXURY GOODS INDUSTRY IN 2006 The world's most well-to-do consumers spent more than $105 billion on luxury goods such as designer apparel, fine watches and writing instruments, jewelry, and select quality leather goods in 2005. The global luxury goods industry was expected to grow by 7 percent during 2006 to reach $112 billion. Italian luxury goods companies accounted for 27 percent of industry sales in 2005, while French luxury goods companies held a 22 percent share of the market, Swiss companies owned a 19 percent share, and U.S. companies accounted for 14 percent of the luxury goods industry. Growth in the luxury goods industry had been attributed to increasing incomes and wealth in developing countries in Eastern Europe and Asia and changing buying habits in the United States. Although traditional luxury consumers in the United States ranked in the top 1 percent of wage earners with household incomes of $300,000 or better, a growing percentage of luxury goods consumers earned substantially less, but still aspired to own products with higher levels of quality and styling. The growing desire for luxury goods by middle-income consumers was thought to be a result of a wide range of factors, including effective advertising and television programming that glorified conspicuous consumption. The demanding day-to-day rigor of a two-income household was another suggested factor because it led middle-income consumers to reward themselves with luxuries. An additional factor contributing to rising sales of luxury goods was the growth of big box discounters such as Wal-Mart and Target. Discounters' low prices on everyday items had facilitated a "Trade up, trade down"2 shopping strategy, whereby consumers could buy necessities at very low prices and then splurge on indulgences ranging from premium vodka to S4,000 Viking stoves. The combined effect of such factors had allowed spending on luxury goods to grow at four times the rate of overall spending in the United States. 1How Coach Got Hot," Fortune, 146, no. 8 (October 28, 2002). As quoted in "Stores Dancing Chic to Chic," Houston Chronicle, May 6, 2006. N N - A N A N 286 ijid Case Five Coach Inc.: Is ls Advantage in Lurury Handbags Sustainable? 287 Coach Inc.'s Balance Sheets, Fiscal 2005-Fiscal 2006 (in thousands) YHIBIT 2 ASSETS equivalents Cash and cash Short-term investments receivable, less allowances of S6,000 and $4,124, respectively July 1, 2006 July 2, 2005 $143,388 $154,566 394,177 228,485 84,361 65,399 Trade accounts Inventories Deferred income taxes and other current assets Total current assets Prepaid expenses 233,494 78,019 41,043 974,482 Long-term investments 184,419 50,820 25,671 709,360 122,065 298,531 227,811 12,007 203,862 income taxes 84,077 Other noncurrent assets 29,612 Total assets 54,545 29,526 $1,370,157 Property and equipment, net Goodwill Inde nite life Deferred intangibles LIABILITIES Accounts Accrued $1,626,520 payable $79,819 261,835 credit facility Current portion of long-term debt 170 Total current liabilities Deferred income taxes 341,824 31,655 3,100 61,207 S437,786 Long-term debt Other liabilities Total 12,088 AND STOCKHOLDERS' EQUITY liabilities Revolving 238,711 liabilities $64,985 188,234 12,292 150 265,661 4,512 3,270 40,794 $314,237 equity Preferred stock: (authorized 25,000,000 shares; $0.01 par value) none issued Common stock: (authorized 1,000,000,000 shares; $O.01 par value) issued and outstanding 369,830,906 and 378,429,710 Stockholders' shares, $3,698 775,209 417,087 respectively Additional paid-in-capital Retained earnings Accumulated other comprehensive (loss) income Total stockholders' equity Total liabilities and stockholders' fi Source: Coach Inc. 2006 10-K. equity (7,260) $1,188,734 $1,626,520 $3,784 566,262 484,971 903 $1,055,920 31,370,157 288 Case Group A Market Opportunity Analysis EXHIBIT 3 Performance of Coach Inc.'s Stock Price, 2000-2006 (a) Trend in Coach's Common Stock Price 45 COH Monthly 35 30 25 20 Stock Price in dollars) 15 10 01 02 03 5 04 Year 06 (b) Performance of Coach's Stock Price Versus the S&P 500 Index +1,400% COH Monthly sp500 AA Coach's Stock Price +1,200% +1,000% +800% +600% +400% S&P 500 +200% +0% -200% 01 02 03 04 Year 05 06 Percent Change (2000 0) Case Five Coach Inc.: Is lis Advaniage in Luxury Handbags Sustainable? 289 Both retailers and luxury goods manufacturers had altered their strategies in response to the changing buying preferences of middle-income consumers in the United States. Much of Target's success was linked to its merchandising strategy that focused on relationships with designers such as Philippe Starck, Todd Oldham, Michael Graves, and Isaac Mizrahi. Target's growth had not gone unnoticed by Wal-Mart, which in 2004 began to closely watch haute couture fashion trends for inspiration for new apparel lines. Wal-Mart hosted fashion shows in Manhattan and Miami's South Beach to launch its Metro 7 collection of women's apparel in fall 2005. Exsto was a designer-inspired menswear line that Wal-Mart introduced in summer 2006. Wal-Mart also had begun to evaluate new store concepts that might appeal to upscale consumers. In 2006, the company was testing a stylish new Supercenter store in Plano, Texas, that stocked gourmet cheeses, organic produce, and 1,200 different wines. The new store also included a Wi-Fi coffee shop and a sushi bar. A Wal-Mart spokesperson explained the company's experimentation by commenting, "We've always been a top choice for the budget-minded customers. What we're trying to do now is expand our product line, and sell products more relevant to folks who are more discerning in their shopping."3 Like Wal-Mart, other middle market retailers had altered their merchandising strategies to accommodate consumers' desires for luxury. During the 2006 Christmas shopping season, J.Crew offered S1,400 cashmere overcoats and Home Depot stocked $2,800 HDTVs for consumers looking for extraordinary gifts. Manufacturers of the finest luxury goods sought to exploit middle-income consumers' desire for such products by launching "diffusion lines" that offered "affordable" or "accessible" luxury In 2006, most leading designer brands had developed subbrands that retained the styling and quality of the marquee brand, but sold at considerably more modest price points. For example, while Dolce & Gabbana dresses might sell at price points between $1,000 and $1,500, very similar appearing dresses under Dolce & Gabbana's affordable luxury'" brand-D&G-were priced at $400 to S600. Giorgio Armani's Emporio Armani line and Gianni Versace's Versus lines typically sold at price points about 50 percent less than similar-looking items carrying the marquee labels. Profit margins on marquee brands approximated 40 percent-50 percent, while most diffusion brands carried profit margins of about 20 percent. Luxury goods manufacturers believed diffusion brands' lower profit margins were offset by the growing size of the "accessible luxury" market and protected margins on such products by sourcing production to lowwage countries. Growing Demand for Luxury Goods in Emerging Markets In 2004, the worldwide total number of households with assets of at least SI million increased by 7 percent to reach 8.3 million. The number of millionaires was expected to increase another 23 percent by 2009 to reach 10.2 million. With much of the increase in new wealth occurring in Asia and the Eastern Europe, demand for luxury goods in emerging markets was projected to grow at annual rates approaching 10 percent. Rising incomes and new wealth had allowed Chinese consumers to account for 11 percent of all luxury goods purchases in 2004. The Chinese market for luxury goods was predicted to increase to 24 percent of global revenues by 2014, which would make it the world's largest market for luxury goods. In 2006, a number of prestigious Western retailers such as Saks Fifth Avenue had opened retail stores in China to build a first mover advantage in the growing market. Similarly, most luxury goods companies had opened stores in China's largest cities with Louis Vuitton operating 12 stores in 10 cities in 2006. 3bid. 4"Some Fashion Houses Bolster Lower Priced Lines," The Wall Street Journal, September 25, 2006.
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CASE STUDY

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Starbuck products
Student’s Name
Instructor’s Name
Institutional Affiliation
Date

CASE STUDY

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Starbuck products

Starbucks is a corporation and a brand as most of its restaurants offer both services and
products. Starbucks deals with different coffee products, espresso drinks, and other cold and hot
drinks. The primary focus of Starbucks is the taste and its quality of their beverage products.
Also, the company sells salads, coffee beans, cold and hot sandwiches. In recent years the
company has expanded its business to sell non-food commodities such as tumblers and mugs.
They are a couple of services provided in Starbucks coffee shops. These services include coffee
preparations, blending ice beverages, and steaming milk (Lee, 2017).
Advantages that McDonald has against Starbuck for coffee sales
Starbuck is a designated coffee location for many people because it offers a variety of
counters and tables, free Wi-Fi, and comfortable chairs. Secondly, it offers a wide range of
drinks, from coffee, tea, and many other soft and hot drinks with different flavors. Despite this
market strategy, Starbucks has continued to face stiff competition against McDonald a fast-food
chain operator. Both of the two corporations are ranked as the most successful fast-food
corporation in America's united states (Lee, 2017). One of the advantages that McDonald's' has
against Starbucks is that their coffee price is significantly lower than compared to Starbucks.
McDonald's has more retail stores than Starbucks. This gives them a more competitive
advantage as they can dominate the local and global market with their beverage product. The
main focus of Starbucks is maintaining the quality of their beverage product. On the other hand,
McDonald's focuses on improving the quality of its beverage product. This earns McDonald's a
market advantage as most consumers prefer a product being upgraded rather than being
maintained. The ordering system at McDonald's is much advanced compared to Starbucks. In

CASE STUDY

3

Starbucks, when a customer places an order, the spot for collecting the order depends on what
was ordered; this can result in time wastage and several inconveniences (Lee, 2017).
What changes in society helped Starbucks become successful?
One of the societal changes contributing to Starbucks ' success is the increase in
Starbucks beverage products' consumption by the American population (Lee, 2017). Over the
years, the number of people who purchase beverage products from Starbucks has increased. With
a higher number of consumers, the company can make favorable returns as well as dominate the
beverage market. The advancement of technology in society has positively impacted Starbucks '
businesses, helping the company advertise its products to new customers (Lee, 2017).
Strategic factors accounting for Starbucks long success in building brand equity
Starbuck has successfully managed to build a brand through the following strategies. The
company creates and retains a skilled workforce. By using the same workforce, the company
can achieve consistency in its production line and prevent poaching of their employees by their
competitors. The advancement in technology has seen the company use state-of-the-art beverage
production machines in their operations. These machines included coffee grinders and brewers,
espresso machines, and other beverage blending machines (Li., 2017). Through these machines,
the company can produce a quality produ...

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