Coach Inc Analysis - Case Study Example

Coach Inc. Case Study Name: Course: Institution: Company Situation Introduction This case highlights the formation of a company in an infant industry and its adaptation to market changes for survival. Coach inc. Company operates in a growing market segment whose growth budded in the 90s dealing with luxury goods such as handbags, travel bags, eyewear, and footwear among others. It therefore becomes necessary to analyze the status of the company in terms of its attributes and finances. The SWOT analysis will facilitate the analysis of internal and external factors affecting its operations. Financial analyses will determine the current financial status as well as performance. This information assists in the designing of strategies to realize the company’s objectives. Financial Analysis Profitability The upward trend of its profitability level indicates that the business is in its growth stage and expects an upward trend in its profit level (Gamble et al 2012 p.290). The company experienced a sales growth between the year 2012 and 1999 of (4200M-555M)/555M=6.6%. The operating profit increased by $1305M-$1150M=$155M Liquidity The company has an attractive liquidity position since the figures present a position where Coach Inc. can comfortably cater for its current liabilities (Gamble et al 2012 p.290). The difference between the current assets and the current liabilities reveal the ability of the company to pay its creditors from its cash accounts or other easily convertible assets. In the year 2010, its liquidity ratio was ($1303M-$529M)=$774M in 2011, the position improved to ($1452M-$593M)=$859M Leverage The leverage ratio identifies the debt level of a company to evaluate the efficiency in use of debt resources to develop the company. Coach inc. presents an attractive leverage ratio which indicated that its operation does not rely heavily on debt but on the company’s assets (Gamble et al 2012 p.289). In 2010, the debt ratio was $1023M/$2635M=0.39 in 2011, the debt ratio amounted to $962M/$2467M=0.39. The company maintained the same debt ratio during the two years of operation. The debt-to-equity ratio in 2010 was $962M/$1505M=0.63 in 2011 the ratio remained constant,$1023M/$2635M=0.63 Activity Coach inc. experienced growth in its sales revenue between the year 2010 and 2011. The sales growth was $4159M-$3608M=$551M. The assets growth between 2010 and 2011 was $2635M-$2467M=$168M. This demonstrates the growth in production capacity over the two financial years (Gamble et al 2012 p.290). The company’s direct sales account for 87% of the total net sales, the indirect wholesaler units lead to $540M serving 970 departmental stores in 2011. Its operating income between the year 2007 and 2011 was (1305M-993M)/993M=0.3% The financial status of Coach inc. convey a strong financial position that will enable the company grow to its desired level. The liquidity information reveals that the company can comfortably meet its current liabilities hence ensuring a strong relationship with its suppliers as well as constant supply to its outlets (Gamble et al 2012 p.288). The leverage position of the company shows that its operations do not rely heavily on external financiers thus reducing its chances of bankruptcy. Its high growth and profitability levels show the potential of the company’s success in the industry. To achieve this, the company may consider lowering its debt-to-equity ratio to 0.5 while working towards a projected sales revenue growth of 25% to improve its profitability level. SWOT Analysis Strengths The company possesses attributes that improve its competitive advantage in the industry. The placing strategy has enabled the company operate a comprehensive distribution channel in over 20 countries, which increases its market base. The major driving force of the company’s success is its pricing strategy. The company offers its commodities at almost half the price of its competitors. This attracts a large number of customers since customer awareness has lead to an increased search for value for money. This has led to the increase in the sales units of the overall commodities due to the attractive prices. Coach inc. offers highly creative products, which acts as the major promotion point for the company. The creativity in the commodities gives the company its identity and makes it easier for its customers to identify with the products. The high quality in the products ensures the production of commodities that meet customers’ expectations hence high customer satisfaction and loyalty. The strong liquidity position of the company has enabled the sourcing of the best suppliers of the commodities to produce within the set lead-time to prevent delivery delays (Gamble et al 2012 p.289). Coach inc. has maintained a strong corporate image since its inception for production of high quality luxury goods. The positive reputation has enabled the company to penetrate new markets and maintain its success levels. Weaknesses Coach inc. operations reveal a major weakness since it relies majorly on outsourcing for the supply of its commodities. The company acquires its products from expert producers in various countries such as China, Vietnam, and India. This major weakness in the firm’s operations may largely affect its profitability level. The custom duties and major tariffs charged during international trade may largely increase the production costs hence lowering the profit margin of the company’s outlets in other countries. Outsourcing may also pose a major threat to the product quality and level of standardization. The nature of the company’s products also reveals a weakness that would potentially affect the profitability as well as the activity level. Coach inc. deals with seasonal products whose stock runs out after certain duration. The outlets therefore experience the shortage costs where the customers wish to purchase products that are out of stock. The outlet may spend more resources in sourcing some of the product from other outlets to maintain its customers’ loyalty. Since the manufacturing orders are on a small-scale, this raises the cost of production hence lowering the profitability (Gamble et al 2012 p.292). Its distribution channel reveals a weakness where the company owns fewer numbers of stores than its competitors especially in the Chinese market. This placing strategy defect prevents the products from reaching its end-users when and where required. Threats Threats to the company’s success emerge from factors in the macroeconomic environment that the company cannot control. The economic environment reflected in the bearish effect had a great impact on the company’s financial position between 2007 and 2009. During this period, the consumers experienced a reduced income level hence cut their consumption of luxury goods. The sales level of Coach Inc. dropped by 0.6% in 2006. The bearish effect did not spare the leverage level of the company since most shareholders disposed their shares and the share price experienced dilution due to the economic situations. Counterfeiting possess a major threat to the reputation of the company. Counterfeit products mostly emerge from China and India. The company must counter check the quality standards of the supplied products to avoid compromising its corporate image. Social and cultural factors threaten the company’s success in the Indian market (Gamble et al 2012 p.291). Indians derive their identity from their cultural outfits and jewelry making it difficult for the company to introduce western fashion items to them. Opportunities The emerging online market offers a large opportunity for coach inc. to grow its operations. This would result in convenient shopping and transactional payments. This would cut the costs of establishing physical outlets in westernized nations and instead establish online outlets to enhance product distribution as well as promotion. Emerging markets for luxury goods offer an attractive opportunity for the company to expand its market base. This would increase the sales volume of the company hence improving its profitability level (Gamble et al 2012 p.289). There exists a huge opportunity for Coach Inc. to operate its manufacturing plants. This would enable the management to monitor the quality levels of the products and ensure their standardization. Opening a fully owned manufacturing plant would improve the company’s liquidity level by lowering its current liabilities. This would also improve the profitability of the company through lowering its cost of production. Conclusion The coach inc. study reveals that the company’s financial position can fully sustain its operations and facilitate its growth. Its strength outweighs its weaknesses hence enabling the company succeeds in the luxury goods market. Major threats exist and the company must prepare for their occurrence to avoid business failure (Gamble et al 2012 p.290). The industry offers the company attractive opportunities that could expand the company’s operations in the long run as well as improve its financial position. References Gamble J. E., Peteraf M.A., Thompson A. A. (2012).Essential Of Strategic Management, 4th Edition. New York. Mcgraw-Hill Publishers. Read More

Gamble J. E., Peteraf M.A., Thompson A. A. (2012).Essential Of Strategic Management, 4th Edition. New York. Mcgraw-Hill Publishers.

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