The conventional wisdom is that luxury couturiers tend not to be impacted much by broader economic woes. The high-end consumer they cater to isn't likely to be impacted to the point that they cut back on their Coach, Inc. (NYSE: COH) and Louis Vuitton.But that not be so true anymore. As luxury goods have found a wider audience, the financial status of their average consumer has declined. Now a lot of people are buying this stuff who can just barely afford it, or can't afford it. If you called Suze Orman on her "Can I afford it?" segment and asked if you could put a Coach bag on your credit card, she'd probably use her magical powers to have you struck by lightning. Unfortunately, it seems that many people are buying luxury goods this way.
MarketWatch reports that "After three consecutive years of double-digit percentage growth, retailers that cater to those shoppers are suddenly dealing with leaner forecasts. Now their sales are on track to rise only 4% to 7% this coming holiday season, according to the Luxury Institute, a New York-based research group."
This is great news. You have to be a complete moron to be buying Coach bags if you earn $60 thousand a year, the average household income of the lowest quarter of the company's shoppers. Apparently people were getting high off of soaring home prices and, now that they're declining, they're realizing that the party is over.
The shift in recent years toward a larger group of less affluent shoppers buying luxury items changes the profile of these stocks. They're no longer something you can count on to stay strong in the face of broader economic weakness.
Where have all the consumers gone?
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Reader Comments (Page 1 of 1)
11-05-2007 @ 8:58PM
Chris said...
"a larger group of less affluent shoppers"
by definition, then, COH isn't a "luxury" brand. So, yes, COH will be more susceptible to decreased consumer spending.
But, the popularity and reach of COH is impressive and I don't see it declining any time soon. Growth may slow a bit, if we do go in to a recession, but that is far from a given.
11-05-2007 @ 11:32PM
Tami said...
The economy isn't hurting Coach. Their styles have downhill steadily. They no longer appeal to women who want a timeless purse. They are too trendy and look like they belong to girls in high school.
11-06-2007 @ 3:29PM
CAROLINE said...
I don't think Louis Vuitton and Coach are in the same league and should not be compared in the same sentence.
Louis Vuitton will not suffer as much as Coach. Coach is made in China. Coach is ubiquitous, I was shopping and dining out and all I saw was those gaudy Coach bags with the huge C's screaming coach. Their quality, styles are dead. The bottom line is: They have lost any credibility and mystique they once had.
I feel their decline is going to be faster than we realize.
11-06-2007 @ 4:15PM
rosalindy said...
Coach is not a 'high end' product. Louis Vuitton is a high end product, as is Fendi, Chanel, Balenciaga, Hermes and brands that have maintained their exclusivity. The monied will continue to buy the upper end brands regardless of housing speculation. There is no comparison between Coach and Louis Vuitton.
Coach is a middle-of-the road Designer and used to produce a quality product. Coach has stripped the worth of its product by making it available everywhere to everyone at any price. Outlet stores are as common as Starbucks. Coach's reprehensible customer service has alienated many loyal fans who won't purchase another Coach product. The party may be over for Coach unless they reel in the monster and tone down the product. Louis Vuitton customers will be aspiring to Hermes.... not Coach.
Something serious for Coach to think about.
11-06-2007 @ 5:12PM
ksb said...
This pretty much sums up my opinion on Coach:
http://thebagsite.com/2007/10/23/the-scarlet-letter-coach-declares-war-on-their-most-loyal-customers/
I have dumped everything Coach I owned as the tactics of this company is despicable. I was a loyal customer for over 20 years. I will never buy a Coach product as long as I live. I've since moved on to Louis Vuitton and Fendi as the quality of these bags is second to none (well..maybe Hermes). Not a single bag in my closet is made in China of inferior products and lousy quality. They are made in the USA, France, Spain and Italy. The difference is like night and day. I say this yet Coach was never in the same quality of LV, Fendi, Gucci, Chloe, Hermes, Dior, etc.
11-12-2007 @ 4:30AM
Ingrid said...
Coach is not a luxury brand. It's a common, cheap commodity make in China of inferior craftsmanship and design. Louis Vuitton retains its value and is an item of beauty.
The stock of Coach will not necessarily reflect the current economic woes and downturn of overly debt burdened buyers. It will instead follow a natural downward progression that mirrors the progression of management and customer service.
Coach is to purses what McDonalds is to hamburgers. That's why their stock will continue to drop.