January 7, 2008 | 12:00am
On the northeast corner of East 57th Street and Madison Avenue in New York there rises a bold challenge — or a colossal coincidence. You decide. It’s a construction site, hidden by a giant picture of a handbag with green leather straps. Behind the veil, Coach is expanding and remodeling its top Manhattan property, with plans to reopen this fall. At 836 square meters, it will be the largest store in Coach’s chain. It follows by almost a year the hugely hyped opening of Louis Vuitton’s new flagship store, the largest in the LVMH empire; exactly one block away, on the northeast corner of 57th and Fifth Avenue.
It’s unlikely this is a coincidence. As a single brand with $1.3 billion in annual sales, Coach is tiny next to LVMH, the world’s largest luxury conglomerate (annual sales: &15.2 billion). Yet in a very real sense, Coach is aggressively stalking its European competitor, from New York to Tokyo. With four straight years of double-digit sales growth, the U.S company has run to the front of the “accessible” luxury market, largely by rapidly expanding on LVMH turf. Coach is now the only real rival to LVMH in perhaps the most prestigious and lucrative of all fashion accessories, handbags.
The main battleground is Asia, which accounts for some 60 percent of global luxury sales. Japan alone accounts for 41 percent of the luxury market, No. 1 in the world. Last March, Coach filed a complaint against LVMH to the Japanese Fair Trade Commission, citing :harassment and anti-competitive practices.” Coach accused LVMH of pressuring “department-store management” to stop new Coach Stores from opening by threatening to withhold the Louis Vuitton brand. LVMH strongly denied the charge in a press release, saying, among other things, that it had been doing business in Japan for 40 years with no complaints.
LVMH which prides itself for its European handcraftsmanship, also cattily implied that the public should be suspicious of a claim “by a company known for producing most of its merchandise in countries where workers are paid low wages.” It was a dig at Coach, which contracts manufacturers in 17 countries, including China (as does LVMH). Soon after, Coach said it aims to raise its Japan market share from 8 percent to 15 percent by 2009. LVMH holds an estimated 30 percent of the Japan market. How did Coach, a New York shop founded in 1941 and once known for its boring leather briefcase, get under the skin of the most dynamic of luxury-goods companies? After taking over in 1995, CEO Lew Krakoff, four years later to “rejuvenate” the brand, says analyst Dana Telsey. Krakoff broke a Coach tradition of making a few simple leather bags in 14 different colors, and introducing only two new styles a year. He began making bags for all seasons, then delivering new designs monthly.
The strategy has been so successful in Japan, that customers make reservations to come in to buy the new products. Price is critical, too. Coach aims to be “accessible” since they use a global pricing strategy to sell bags at 50 to 60 percent of the comparable European bags. Coach has become the luxury brand people can afford. LVMH, though, has not been sitting idle. This year, it rolled out a new series of lower-priced handbags. It is also willing to put up the “crazy talent” of its designer Marc Jacobs against any comers, which certainly include Coach. Competition is sure to continue. Ladies, hold on to your handbags!
