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Ho Chi Minh City, Vietnam
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03 May, 2018 -
Washington DC, U.S.
The American leather goods company Coach has just bought Kate Spade for US$2.4 billion. It comes two years after it purchased Stuart Weitzman footwear. This looks like to be the start of creating a luxury conglomerate based in New York similar to the likes of Kering and LVMH in Europe.
It would not be a new concept. With the world choosing to overproduce almost everything, any business-to-business marketer can pull out charts showing consolidation in almost every market in the past fifty years leaving a quite oligopolistic situation where three or four major players have 60% or more of the market. The recent merger in the global beer market left the leader with a 51% worldwide share. In the luxury sector, while Hermès and LVMH have recently posted good results, the volatility in the Chinese economy and elsewhere means a number of brands such as Jimmy Choo are up for sale as their owners lose confidence in the market.
The Coach move tells us something else as they are quite open that they want to gain a larger share of a younger, essentially millennial, demographic where Coach feels it is weak. In some ways, Coach had followed the UK's Marks and Spencer route into problems. Decades of making high quality product for boomers and, then, suddenly switching to trying to be younger. Masked by hugely successful international growth they missed that they were losing both sets of customers. M&S did exactly the same but failed internationally so appeared destined to gradually turn itself into a food store.
Coach has bounced back as a result of big improvements in design and sourcing along with some major store revamps. It has also put a lot of effort into managing distribution to ensure that affordable luxury does not extend so wide that the brand loses its image; something that badly damaged Burberry a decade ago.
The rules of buying luxury have changed
The fact the sector’s determination to continue seeing themselves in the luxury market is a difficult game for those near the bottom of the luxury pyramid. For many younger consumers, the very word luxury spells out negative feelings for a greedy consumption based society obsessed with privilege and exclusion. And for those who are interested in buying luxury, the rules of acquisition and ownership along with the assessment of value appear to be changing. With experiences replacing ownership, and longevity and craftsmanship overtaking the power of ostentatious branding, the quality priority is being redefined.
Perhaps we will start seeing more of those beautifully crafted all leather bags that Coach was famous for in the 1980s, and some of us still carry today. We do not see it as a luxury, but as a proud possession that is unbelievable value for money.
10th May 2017
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