Coach Hitches Its Wagon to China

U.S. handbag maker Coach Inc. is pushing for China to become its No. 1 market in the next three years, expanding stores despite an economic slowdown and the rise of online and second-hand markets for handbags in the country. The New York-based company said it is on track to reach $300 million in sales in China by the end of this year and aims to reach $500 million in sales from China by 2014, said Victor Luis, president of Coach’s international operations, in an interview on Thursday. Coach posted China sales of $185 million in 2010.

For the latest fiscal year, Coach’s global revenue totaled $4.16 billion. The handbag, accessories and leather-goods maker is pressing forward even amid signs of slowing GDP growth and weakened demand for China’s exports, showing that executives believe China’s economy will still grow at a steady clip despite Beijing’s efforts to tame inflation and continued unease abroad. “We see China as having more levers at its disposal to manage debt, property, and economic turmoil,” Mr. Luis said. “We feel the wind at our back right now in China.” To reach that three-year goal, Coach plans to open about 30 stores each year for the next few years primarily in what are known as China’s second- and third-tier cities, or fast-growing urban areas outside the central cities of Beijing, Shanghai, Guangzhou and Shenzhen. Locations include far western Urumqi and Nanning in the southwest.

It is also rolling out kiosks at the fronts of department stores to grab attention and building large regional stores where it can have more space to showcase products beyond its core accessories, such as knitwear, coats and eventually perfumes. China is already Coach’s fastest-growing market, Mr. Luis said. Coach will operate 71 stores in China’s mainland as well as in Hong Kong and Macau by calendar year-end. Coach ranks within the luxury category but its products are more within reach than many high-end brands. Its bags can range from about 600 yuan to 15,950 yuan (about $95-$2,500) in China.

Analysts say that as Chinese earn more disposable income, they will continue to look for handbags, belts, and luggage that will mark their economic rise. “There is an ever-growing consumer group having the ability and the desire to buy premium or luxury products beyond China’s biggest cities,” said Pascal Armoudom, a partner at consulting firm A.T. Kearney in Shanghai. China’s luxury buyers show a willingness to spend, doling out an average of 10% of their total household income on items such as jewelry, clothing and bags, according to data from brokerage CLSA Asia-Pacific Markets.

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