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Style and substance, Coach commits to China

By Lillian Liu (China Daily)
Updated: 2008-07-01 13:38

Reduction in costs

Frankfort said rising labor costs in China, the world's fastest growing economy and where the vast majority of Coach bags are made, may cause the group to subcontract more manufacturing jobs to Vietnam and India.

"We are striving to make our existing manufacturing base more efficient to offset significant labor cost. We are also expanding into northern China where costs are more affordable, and expanding production in India, and beginning production in Vietnam," he said.

China will continue to be an important manufacturing base for handbag makers, Frankfort said, because the "vast majority of our bags are made in the country, which boasts large numbers of skillful manufacturing workers and they make good quality products".

He said India is the next frontier after China, but infrastructure problems there prevented the company from developing immediate plans to enter the market, while Vietnam features cheap labor costs but "is not as efficient".

The lower cost handbags are expected to be more attractive to customers than their European peers.

More accessible handbags

"We make our products in lower-cost countries, but the raw material comes from the finest mills and tanneries in the world," said Frankfort.

"We provide Chinese customers with an alternative to the European luxury brands."

Coach handbags retail for up to $1,100, but many are sold for half of Louis Vuitton.

China, the world's third biggest consumer of high-end fashion, is buying more than $2 billion worth of upscale products a year, a figure that could top $11.5 billion as the world's top brands grow in the market, said Ernst & Young in a report.

The US group hopes to take a 10 percent share of China's premium handbag and accessories market in 2013, up from 3 percent now.

Target customers

The primary focus of Coach is 25 to 35-year-old well-educated and well-paid Chinese females.

"We are targeting young female professionals who received university education and tend to travel more and have an appetite for luxury handbags," said Frankfort, adding that those shoppers are likely to become brand-loyal.

"Coach handbags are not as prestigious as some brands. They use lower-graded leather than Louis Vuitton, but they are more international and boast very good quality," Jessica Lam, a Hong Kong-based legal consultant and luxury handbag fan told China Daily.

Customers in the US, the home market of Coach, may be more difficult to lure. The recent US slowdown has taken a toll on parts of the luxury sector. This has resulted in narrowed sales growth for companies such as Gucci and Bulgari over the last few months.

Frankfort said the group, which is still recording double-digit sales growth, has felt the pinch of the weakened economy, but would strive to excite US customers.

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