Now America’s No. 1 luxury brand, Coach, is trying to turn the mainland into its own new world market for its handbags, wallets, briefcases, footwear, watches and other accessories for women and men.
To add momentum to its Chinese invasion, it hired Thibault Villet as president of Greater China in Hong Kong last year. It’s a high-profile appointment that highlights Coach’s determination to ramp up its retail operation and brand awareness in China.
A cheerful, well-dressed French native, Mr. Villet was previously based in Tokyo as VP of L’Oreal’s luxury product divisions in Japan. He spent 13 years at L'Oreal in various roles, including a four-year term as VP-general manager of its luxury products division for China, based in Shanghai. From 2002-2006, he helped rebrand Lancome’s image in China through marketing, retail relationships and CRM activities.
“This is a newly created position that has been developed to support our Greater China initiative, focused on accelerating growth in this emerging region for luxury accessories,” said Lew Frankfort, Coach’s chairman-CEO in New York. “Mainland China will become a significant market for luxury brands during the next several years, as income and consumer spending levels catch up to the retail development that is already present in this market.”
Coach accounts for one-quarter of all luxury handbag and accessories sales in the U.S., and controls nearly 12% of the market in Japan. Those two countries combined account for 95% of Coach’s sales. In China, its current market share is miniscule.
"There’s a lot of potential for our brand in China. It’s the third pillar in our strategy after the U.S. and Japan,” said Mr. Villet. “Our business is still in the initial stages, but our key potential comes from our strong quality control, good service, heritage and value for money.”
The average Coach bag costs about $300, about half the price of similar bags made by European companies. One reason it is priced below competitors is because many of its products are made in China. European marketers still produce many of their products on the continent. (Ironically, designer goods constructed in Europe are typically made by Chinese factory workers.)
The company currently has 50 stores in Greater China, including duty-free shops, generating $100 million in sales annually. It plans to open 30 more in the next two years to catch up with European rivals, which could boost sales in the region to $150 million by 2010.
His first step to give Coach a visible boost is a flagship store in Hong Kong that rivals its existing flagships on Madison Avenue in New York and in Tokyo’s Ginza district. The two-sided, four-story site will open in Central on Queen’s Road in early summer.
Stocked with fragrances, a first for Coach in early summer, and other products not on sale elsewhere in the region, the store will cater to three distinct consumer groups -- tourists from mainland China, tourists from the rest of Asia, particularly Japan and South Korea, and affluent local consumers in one of Asia’s richest cities.
"It’s quite exciting,” said Mr. Villet, with undisguised glee for the project. “Fifty-five percent of all visitors to Hong Kong are from mainland China and that figure is increasing.” Prices in Hong Kong, a low tax zone, tend to be significantly lower than those in China, “but [tourists] are also in a good mood for shopping when they visit Hong Kong, they want to enjoy themselves,” he said.
Coach is also accelerating store openings in the region’s other three territories -- Chinese cities like Shanghai, Beijing, Hangzhou, Shenzhen, Xi’an, Chengdu; Taiwan; and Macau, which is becoming a hotspot for luxury shopping.
Chinese tourists are attracted to the former Portuguese colony for the casinos in lavish hotels like the Venetian and the Sands. But the lobbies of those venues are stocked with every major label catering to the rich wives and girlfriends of wealthy gamblers.
Coach also hired another insider of the local luxury market, Gu Ming, a eight-year veteran of the China division of Hachette Filipacchi Medias. In her last role at the French publishing house, she was publisher of its upscale female magazines in the mainland, including Elle, Elle Decoration and Marie Claire.
From a baseball glove to Beijing
Coach was founded more than 50 years ago as a family-run workshop of artisans in a Manhattan loft turning out high-quality leather goods. After the company’s founder was inspired by a well-used baseball glove’s distinctive markings and supple texture, glove-tanned leather became one of its signature materials. It remains a Coach staple today, but communicating historical facts like this in China is a challenge, and not just for Coach.
The mainland’s richest consumers are not old-money elite with a long tradition of buying designer brands. They are noveau-riche, and their driving motivation is buying expensive products that will show off their wealth. Chinese currently spend more than $2 billion annually, according to Ernst & Young, and that figure that could top $11.5 billion in 2015.
“Because of the rapid but sizable wealth that's been created in China, there is tremendous demand for luxury goods, but along with that demand came a large demand for information," said Hung Huang, CEO of China Interactive Media Group and publisher of one of China’s most respected women’s lifestyle magazines, iLook.
"People here want to know why they should buy certain brands of clothing, wine or watches. The stories behind the brands are very important to these consumers,” particularly about the branding and history of top labels.
Coach is also betting on China, as well as Russia, to sidestep a looming recession at home. Coach is the No. 1 luxury accessories brand in the U.S. and in the last half of 2007, its total earnings grew 15% to $407 million.
But its best-selling products during last year’s Christmas season in North America were cheaper items like key chains and fragrances. Sales growth at Coach’s factory outlets, where margins are lower, are also growing faster than full-priced retail stores.
Even if U.S. sales rebound, Coach will remain committed to growing in Greater China, said Mr. Villet. “Before, we were focused on the U.S. and Japan, but having sized the Chinese market, we decided it’s the right time to invest here."