Coach Case Study
Summarize the SWOT analysis in a one-page table and place in the APPENDIX. Discuss the
table in the body of the paper.
Introduction
Coach, Inc is a New York based company that was founded in 1941 by Miles Cahn, a leather
artisan who began his trade from the production of ladies handbags. To date Couch is popular for
its gifts and accessories for men and women which include footwear, travel accessories, men’s
bags, jewelry, scarves and other accessories. The company was sold to Sara Lee Corporation in
1985 and Cahn was replaced by Lew Frankfort as the president. Couch has a market
capitalization of $10.78 Billion.
Sales Analysis
In the year 2009, the sales revenue for Coach Inc amounted to $3,230,468,000 while in 2010 and
2011, the sales amounted to $3,607,636,000 and $4,158,507,000. These figures represented an
increase of 15.27% in 2011 as compared to 2010 which registered an increase of 11.68% in
- The gross profit margin increased almost constantly at about 73% for both the years 2011
and 2010 while in 2009 it was 72%.
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The general trend of sales is generally increasing at an increasing rate while the rate of growth is
also increasing. But between the years 2008 and 2009 there was a slump in the economy and the
rate of growth in sales was heavily affected. During this period the rate of growth dropped from a
high of 21.75 % in 2008 to 1.56% in 2009. The gross profit was also not spared, it dropped from
a high of 18.99% in 2008 to -3.5 in 2009 while the net profit was the worst hit. It registered
23.01% increase in sales in 2008 but decreased massively by 20.39%. These events can be
related to a successful business cycle where Coach Inc has gone a full cycle from high of level of
business trading registered in 2008 to steep drop in sales 2009 and high recovery in 2010 before
slowing down again in 2011. The company has passed its maturity stage of its business cycle
that’s characterized with the reduced level of sales growth from a very high period of growth as
it gets ready for another depression.
2008200920102011
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Coach Inc. Business Cycle
GP
Net Profit
Net sales
The drop in sales between the years 2008 and 2009 can be related to the global economical crisis
that largely affected most economies in the world.
Coach’s Profitability
Coach Case Study 3
In the year 2009, the sales revenue for Coach Inc amounted to $3,230,468,000 while in 2010 and
2011, the sales amounted to $3,607,636,000 and $4,158,507,000. These figures represented an
increase of 15.27% in 2011 as compared to 2010 which registered an increase of 11.68% in
- The gross profit margin increased almost constantly at about 73% for both the years 2011
and 2010 while in 2009 it was 72%. The net profit margin in 2011 was 21.18% while for the
years 2010, 2009 and 2008, Coach Inc registered 20.37%, 19.3% and 24.62% respectively. The
asset turnover for Coach for 2011 was 1.63 while for 2010 and 2009 it registered 1.43 and 1.28
respectively. The net asset turnover for the same period amounted to 0.39, 0.42 and 0.53 for
2011, 2010 and 2009 respectively.
Liquidity
In 2011, the current ratios relating to Coach Inc liquidity indicates that its managing its liquidity
issues efficiently. The ratios are all slightly above the standard ratios that are mostly applied as
the rules of thumb for example the current ratios should be at least 2:1, that’s the current
liabilities should not exceed half the total value of the current assets while the quick ratio that’s
obtained by dividing the current assets and the current liabilities. The current ratios for Coach Inc
are 2.45, 2.46 and 3.04 for the years 2011, 2010 and 2009 while the industry’s averages are 1.32
and 1.44 for the years 2011 and 2010. The liquidity status of Coach Inc is much better than
others in the same industry.
The acceptable rule of thumb dictates that the current ratio should be at least 2:1. This means that
the current assets should be at least twice the current assets while the quick ratio should be 1:1
that’s the current assets less the company’s inventory should be equal to the current liabilities.
The rule of thumb for quick ratio is 1:1. The industry ratios provide a way of analyzing the
Coach Case Study 4
liquidity of a company. The quick ratio for the industry were 0.67 and 0.88 for the years 2011
and 2010 respectively while Coach’s quick ratios were 1.01, 0.98 and 1.98 for the years 2011,
2010 and 2009. High liquidity means that the company is capable of meeting all its commitment
however very high liquidity ratios also indicate that the company is not utilizing its financial
resources adequately to generate wealth.
Couch Inc 2011 2010 2009
Current Ratio Total Current Assets/Total current liabilities 2.45 2.46 3.04
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 1.01 0.98 1.23
Industry 2011 2010 2009
Current
Ratio
Total Current Assets/Total current liabilities 1.32 1.44 1.33
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 0.67 0.88 0.76
Leverage
These ratios show how indebted the company is and the ratios include:
Debt to assets ratios
Coach’s debt to asset ratio for 2011, 2010 and 2009 are all 0.01 while the industry’s ratio is 0.29
and 0.27 for 2011 and 2010 respectively. The industry’s ratios are better than those of Coach.
Coach is less indebted than the average company in the market. This means that Coach is not
utilizing its debt portfolio effectively (Ross, Westerfield and Bradford, 2010).
Profitability
Coach Case Study 5
Net profit margin for Coach for the year 2011, 2010 and 2009 were 21.18%, 20.37% and 19.29%
while the industry’s ratio for Net profit margin were 0.95%, 1.54% for 2011 and 2010
respectively. The return on assets for Coach Inc for 2011, 2010 and 2009 were 0.33, 0.30 and
0.24 while the industry’s average is 1.83, 1.85 and 2.46. The profitability of Coach Inc is much
higher than the industry’s performance (Moyer, Kretlow, McGuigan, 2011).
Activity
These are efficiency ratios and they include the turnover ratio which is obtained by dividing the
cost of sales by the average inventory. The inventory turnover ratio for Coach in Inc for 2011,
2010 and 2009 were 2.89, 2.83 and 2.63 respectively. These ratios shows that the inventory
turned 2.89 times in 2011 while in 2010 and 2009 it turned 2.83 and 2.63 times. These is against
the industry’s average of 1.83 turns in 2011 and 1.85 in 2010 while in 2009 it turned 2.46.
The total assets turn over for Coach for 2011, 2010 and 2009 were 1.63, 1.43 and 1.28
respectively while the industry’s average was 1.83 and 1.85 respectively. The performance of
Coach Inc was below the industry’s average (Luenberger, 1997). The average turn for the
industry is better than the performance of Coach. It means that the inventory turns less in Coach
Inc than in the average industry. The stock turns indicate less efficiency in sales system in the
firm.
Coach’s Performance
Inventory Turnover Cost of goods sold/Average inventory 2.89 2.83 2.63
Asset turnover Sales/Average total assets 1.63 1.43 1.28
Industry’s Performance
Coach Case Study 6
Inventory
Turnover
Cost of goods sold/Average inventory 3.99 4.41 7.03
Asset
turnover
Sales/Average total assets 1.83 1.85 2.46
Swot Analysis
The SWOT analysis refers to the evaluation of all the strengths, weaknesses, opportunities and
threats facing a firm.
Strength
The major objective of Couch in its 2008 annual report was to create more brand loyalty by
providing top quality products that would create emotional connection to the brand. These would
strengthen the consumer relationship with the brand name. Its mission was to cultivate ways of
improving and maintain its brand loyal customers. The Couch brand commands a lot of market
in the luxury brand of both men and women apparel accessories.
The other strength of Coach is found in its strong market capitalization as compared to the
industry. The quality brands that identifies the products of Coach Inc and the pricing advantage
that the company has against its major competitors serves as a strong advantage that makes the
Coach products more competitive in the market. The pricing policy attracts the clients while the
quality brands and styling of the products creates valuable customer loyalty. The high liquidity
ratios provide a source of financial stability that gives the company an edge against most of their
Coach Case Study 7
competitors in the market. The sales trend for Coach is far much better than the performance of
the industry.
201120102009
-200.00
0.00
200.00
400.00
600.00
800.00
1000.00
Industry’s performance
GP
Net Profit
EAT
Sales
The multi-channel distributional network allows timely distribution of its products
internationally. The channels dealing with the consumers directly including the Coach owned
retail stores in North America, Japan and lately through the internet have provided a very strong
platform for expansion of its market.
Coach is also very innovative and largely consumer –centric. It listens to the demands,
recommendations and needs of its customers and through continuous research it has provided
products that are oriented to the demands of its clients. Couch Inc actually anticipates the
changing needs of its customers and responds effectively to the demands by regular research and
development to provide the best products for its customers.
Weaknesses
Coach Case Study 8
The major weaknesses of Coach Inc are found in its inability to control the counterfeiting of its
products in the market. Most of the counterfeits originate largely from China and the Asian
countries. Coach Inc has no clear strategy objective or direction of handling this problem,
The company is yet to develop its core competency and adopt aggressive marketing strategies to
compete effectively with its rivals in the market.
Opportunities
The opportunities for growth are many for Coach Inc. Its ability to create mergers and joint
ventures in order to expand more and enjoy the economies of scale are clearly possible. The
increasing globalization of trade has resulted in a lot of trade barriers that were hindering trade
expansion to be abolished. Coach has the opportunity to expand to other international territories
in different geographical regions globally. Coach also has the opportunity to expand its products
line even more not just on men attires but also on other accessories.
The greatest opportunity for Coach Inc is from its luxury brand of products. Coach Inc is
positioning itself in the market by creating a consumer segment that deals with luxury fashion
and already it has begun its operations in marketing its distinct franchises in India.
Threats
The international market is still facing some restriction in some countries where trade policies
have not been liberalized and charges are more punitive to foreign companies hence they
discourage international trade. The slow-down in international market is also posing a threat to
the continued expansion of Coach’s emerging market.
Coach Case Study 9
The threats facing Coach Inc mostly stem from the effects of the global economy. Between the
years 2008 and 2009, the global economic crises affected the performance of Coach Inc and its
sales dropped dramatically during that period. The other threats facing the corporation are the
problem of counterfeits which is threatening its quality brand of sales.
The other challenge is that more aggressive players are still entering the market with new and
superior products. These rivals pose great threats to the survival of Coach Inc.
Recommendations
Couch’s key strategy is build and expand new market share by establishing new full price
modern retail stores numbering roughly fifteen across North America and in high value shopping
malls. This initiative is expected to increase sales productivity and introduce more efficiency in
sales promotion and advertising strategies.
Couch Inc is also strategizing to expand its market to about fifteen other prime new locations in
Japan while establishing other 30 outlets in South America, Europe and Asia. The men’s product
have been earmarked for more production and aggressive marketing exposure.
To improve its sales, Coach Inc should embark on strategic marketing of its products in the
market. In order to improve its market share in the industry, Coach should continue
differentiating its quality brand of luxurious items by narrowing the market and directing its
products towards a defined and designated market segment. Market segmentation directly leads
to ultimate product differentiation which tangibly differentiates the branded products from their
competitors. The generic strategies that enforced the development of luxurious and quality line
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products improved the performance of Coach in the market and which is the major source of
strength for the company.
To conclude, the company grand strategy in pricing control also attracted a sizeable market as
most customers are attracted by low valued items and which are mostly associated with low
quality products. But Coach Inc products were very competitive in the market than most
products especially the luxurious brands.
Coach Case Study
11
References
www.michaelkors.com
http://investors.michaelkors.com/files/doc_financials/annual_report/KORS2012441220F201200
31.pdf
Luenberger, D. (1997). Investment Science, Oxford University Press.
Moyer, C., Kretlow, W., McGuigan, J. (2011). Contemporary Financial Management (12 ed.)
Winsted: South-Western Publishing Co. pp. 147–498
Ross, S., Westerfield, R.W. and Bradford, D.J. (2010). Fundamentals of Corporate Finance (9
ed.) New York: McGraw-Hill. pp. 145–287
Vera Bradley Form 10-K annual report
http://investors.verabradley.com/secfiling.cfm?filingID=1193125-13-138930
Coach Case Study 12
Appendices
Couch Inc 2011 2010 2009
Current Ratio Total Current Assets/Total current liabilities 2.45 2.46 3.04
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 1.01 0.98 1.23
Inventory Turnover Cost of goods sold/Average inventory 2.89 2.83 2.63
Asset turnover Sales/Average total assets 1.63 1.43 1.28
Dividend yield Div per Share / Current Share price
Dividend cover EPS/ Dividend per Share
Net assets
turnover
Net assets / total sales 0.39 0.42 0.53
Times interest
earned
EBIT/Annual Interest Expense
Debt to total Asset Debt/Assets 0.01 0.01 0.01
Interest cover EBIT/Annual Interest Expense
Profit margin on
sale
GP/sales 0.73 0.73 0.72
R.R return on
assets
EAT/Total Assets 0.33 0.30 0.24
R.R com stock
equity
Profit after taxes/Shareholders equity 0.55 0.49 0.37
Earnings per share Profit after taxes-pref div)/No. of comm O/S
Payout Ratio cash dividends/income
ROE Return On Equity (ROE) 0.55 0.49 0.37
ROA Return on average Assets 0.33 0.30 0.24
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13
Vera Bradley 2011 2010 2009
Current Ratio Total Current Assets/Total current liabilities 2.34 2.24
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 0.93 0.89
Inventory Turnover Cost of goods sold/Average inventory 1.92 1.69
Asset turnover Sales/Average total assets 2.03 1.61
Dividend yield Div per Share / Current Share price 0.04 0.03 0.02
Dividend cover EPS/ Dividend per Share 1.74 2.20
Net assets turnover Net assets / total sales 0.18 0.27
Times interest earned EBIT/Annual Interest Expense 31.81 27.50
Debt to total Asset Debt/Assets 0.32 0.16
Interest cover EBIT/Annual Interest Expense 31.81 27.50 9.83
Profit margin on sale GP/sales % 57.14 52.31 51.60
R.R return on assets EAT/Total Assets 0.22 0.28
R.R com stock equity Profit after taxes/Shareholders equity 0.72 0.55
Earnings per share Profit after taxes-pref div)/No. of comm O/S 0.79 0.75 0.42
Payout Ratio cash dividends/income 0.63 0.61 0.63
ROE Return On Equity (ROE) 0.72 0.55
ROA Return on average Assets 0.26 0.24
Coach Case Study 14
SWOT SUMMARY
Couch’s Strength
Strong financial base and resources hence ability to grow and expand the business
Strong brand name and good company reputation which can create customer
loyalty
Large economies of scale and vast experience in the industry
Superior quality apparel fashion designs, pricing policy and luxurious products
Good and efficient customer service
Strong global distribution networks
Ability to form mergers, alliances and joint ventures for great prosperity.
Weaknesses
No clear strategic objective and direction
Lack of aggressive marketing capabilities.
No well developed core competencies
Opportunities
Expansion to new geographical regions
To broaden the product line to include more customer categories
Reduced trade barriers in international trade
Merging and acquiring strategic businesses.
Threats
Entry of more competitive rivals in the market
Restrictive trade policies in some countries
Costly new governmental policies and regulations.
Slow down in international market
