Publicly Listed Luxury Goods Companies: A Comparison Of Two Companies With Recommendations - Research Paper Example

? PUBLICLY LISTED LUXURY GOODS COMPANIES: A COMPARISON OF TWO COMPANIES WITH RECOMMENDATIONS EXECUTIVE SUMMARY It is oftensaid that the rich are always getting richer while the poor are getting poorer. Well, that may seem to be the case in this day and age, where luxury spending has become the order of the day. Not a day passes by without the media, through magazines, advertisements and television, insisting on the importance of luxury goods or products. Even though these products are not a necessity in life, they are still considered a must-have by almost all individuals. The business world has greatly transformed with the onset of luxury goods demand from the wealthy in the world. It is thus not a wonder to realize that majority of private companies are choosing to go public in order to be able to not only sell their shares publicly, but also attract investors and luxury goods clientele. Private companies that choose to go public are known as publicly-listed companies. There has been a recent establishment of such companies in America as well as most developing nations. The main purpose of this research study was to investigate publicly-listed luxury goods companies whereby 2 luxury goods companies were compared. The research incorporated qualitative information. The two luxury goods companies, Coach Inc. and Tiffany & Co. are well recognized and have built themselves a good reputation not only locally but also internationally. Similar to a few other companies, these two publicly listed luxury goods companies started off small and were private companies. Their owners saw the advantage of becoming publicly listed and since the demand for luxury products has been on the increase, decided to concentrate on such products. INTRODUCTION Majority of individuals around the world have at one time or another desired to or even owned luxury goods or products. There is also a recent hype all over the media suggesting that people are better of living a luxurious life, possessing luxury goods. Businesses in the 21st Century are aiming to be providers of luxury goods as a way of keeping up with the trends (McCahery & Vermeulen 2010). If one does not own a luxury product then they are considered not to be ‘cool’. Despite economic hardships, majority of people are still in a position of affording luxury goods and services (Egner 2009). Emergence of new wealthy clientele from developed and developing nations has made luxury to take on a number of new meanings. No longer does the term luxury solely refer to expensive products that poor and low income earners cannot afford. The term luxury was in the past referring to the consumption of goods or products that were not only expensive but were also rarely known and discreet (Hoffman & Coste-Maniere 2011). But that was before the recession. Once the recession ended, even the wealthiest individuals became poor. As a result of the economic shift the image of luxury has since then become understated. The term luxury no longer refers to conspicuous and excessive consumption but means goods or products with higher perceived value as well as increased practicality (Silverstein, Fiske & Butman 2008). A good/product/item that is not necessary for living but perceived to be highly desired within a given culture or society is known as a luxury good (Silverstein & Fiske 2003). Luxury goods are also identified as positional goods as they tend to show that the owner has attained a certain status within society where he/she is now able to afford them (McCahery & Vermeulen 2010). They are commonly bought by individuals with more income and wealth. However, the existence of luxury goods is wholly dependent on income elasticity of demand, where if positive, means that they can exist, and vice versa (Egner 2009). This means that if the income is higher, people are in a better position of purchasing luxury goods. As earlier mentioned, many companies and organizations are starting to focus on becoming luxury goods companies as they have realized more profit is made where a few clientele are concerned (Silverstein & Fiske 2003). When a company’s product or good is viewed as unique, customized and one of a kind, the company creates instance exclusivity where no one else is able to have what that company has. It is therefore not uncommon to come across a number of luxury goods companies such as Coach Inc., Prada, Tiffany & Co., Richemont and Armani who have established themselves and retained a large number of clientele. Every business venture has to begin from somewhere and these luxury goods companies started off as publicly-listed companies. DISCUSSION Publicly-listed companies are those companies that are considered well established and have expanded to a point where they become dominant in a certain market sector (Egner 2009). These companies require a capital investment for them to become a household name or expand to a totally new level (Silverstein, et al. 2008). Publicly listed companies tend to enjoy a number of benefits unlike other companies for instance the fact that they are able to sell their shares to the public, where they can also be listed on the Stock Exchange or any other alternative investment market (Hoffman & Coste-Maniere 2011). Shareholders in publicly-listed companies are the final decision makers through its General Meeting. These companies also enjoy the advantage of having greater access to financing as compared to other organizations. This is because they are capable of issuing more stock (Silverstein & Fiske 2003). In an age where more and more people are becoming wealthy thus changing the expectations of many, majority of privately owned companies eventually opt to go public as a way of raising capital to finance growth. Some of the companies which have so far gone public and specialize in luxury goods include Prada, Armani, Mercedes-Benz and Coach Inc. (McCahery & Vermeulen 2010). Despite many people pulling back on spending as a result of the economy being unstable, it seems that the wealthy can still afford to buy anything luxurious for instance designer clothing and luxury vehicles. Luxury goods companies which tend to fair more worse than other retailer also seem to be booming with business (Silverstein, et al. 2008). It is believed that with time, the wealthy individuals may soon contribute unfavorably to the overall economic recover, keeping in mind that free spending of the rich may not be appealing to those who are low income earners or out of cash (Silverstein & Fiske 2003). This assumption does not however make companies or stores from stocking up on luxury items, as more and more clientele flock to purchase expensive products. Coach Inc. Company Coach Inc is an American luxury leather goods company known globally for ladies’ handbags, sunwear, briefcases, wallets, shoes and other luxurious accessories (McCahery & Vermeulen 2010). Not only is this company recognized locally, it is also recognized internationally for its marketing and design of accessories, as well as gifts for both men and women. It has established a reputation of being a designer, producer and marketer of high quality, contemporary American classic accessories that tend to complement the diverse lifestyles of people (Egner 2009). Like any other business, Coach Inc was founded in the year 1941 in New York City where it was a partnership by the name Gail Manufacturing Company (Hoffman & Coste-Maniere 2011). By this time, it was still small leather goods manufacturer that was family owned and had only 6 employees. However, in the course of running the business, Miles Cahn, one of the co-owners of the company, took notice of certain distinctive features of leather used in the making of baseball gloves (Silverstein, et al. 2008). It is from this observation that he decided to come up with a way of processing leather to strengthen, soften it, make it more flexible and have a deeper tone of color. Cahn’s wife, Lillian, suggested that a number of women’s handbags be designed to act as a supplement of the factory’s low margin wallet production (McCahery & Vermeulen 2010). The handbags were named Coach and were created from sturdy cowhide whereby the grain of the leather could still be visible as compared to the thin leather pasted over cardboard that was usually utilized in women’s handbags during that time (Silverstein & Fiske 2003). It was at this point that the company entered into the world of classic, luxury, long lasting women’s handbags that defined it. After a while, in the mid 1970s, the production of handbags ended in New York City and forced Gail Leather Products, Inc to relocate to another region in the United States (Egner 2009). The company then changed its name to Coach Products, Inc., and later on to Coach Leatherware Company, Inc., a name that has since then been used and is currently internationally recognized. Coach, Inc is a marketer of high quality accessories as well as gifts for both men and women and whose product offerings incorporate travel bags, footwear, women’s and men’s bag, business cases and so forth (Hoffman & Coste-Maniere 2011). With the company’s headquarters in mid town Manhattan where their former factory lofts were located, Coach, Inc has made recent efforts of merging with well known artists such as Zhang Lan and Hugo Guinness, in order to create limited edition collections (Silverstein, et al. 2008). The company became a publicly listed company in the early 1990s as its catalog operations were most profitable despite the fact that they were small. Coach Inc ventured further into the leather business where it begun offering leather outerwear while expanding on the variety of its handbags (Silverstein & Fiske 2003). The company has since then made a few licensing deals with other luxury goods companies such as Motorola, Inc., and Baker Furniture Company (Hoffman & Coste-Maniere 2011). Its shares are also traded on the New York Stock Exchange. Tiffany & Co. The mere mention of the name Tiffany’s is bound to turn the heads of every female species within hearing distance. Tiffany and Co is a publicly listed luxury goods company that has in the recent past established a rich reputation for itself for its main product, jewelry (Egner 2009). This company is also able to sell its shares publicly and similar to Coach Inc., it also has its shares traded in the New York Stock Exchange (McCahery & Vermeulen 2010). Individuals by the names Charles Lewis Tiffany and John F. Young established Tiffany & Young in the year 1837, in New York City. This particular store concentrated on the sale of stationery as well as costume jewelry (Silverstein & Fiske 2003). Sooner than expected, the company was able to stand apart from the crowd through marking of products with specific prices that were considered non negotiable (Hoffman & Coste-Maniere 2011). At that time, no other business or company for that matter implemented such a policy and this attracted the attention of young investors and their business. The founders also insisted on a cash-only basis as compared to providing extending credit services. Tiffany & Young soon hosted another co-partner by the name J. L. Ellis and the store changed its name to Tiffany, Young & Ellis, in the year 1841 (Silverstein, et al. 2008). 4 years down the line, the company became successful to an extent of discontinuing past and begun selling real jewelry in addition to clocks and watches, perfumes, dinner sets, among others. Ellis’s capital was enough to enable Young to travel to Paris as a buyer where he later established a branch store (McCahery & Vermeulen 2010). Later on, in the year 1853, Charles Tiffany became the sole controller of the company where he renamed it to Tiffany & Co and this is the name that has since gained fame all over the world (Egner 2009). In the course of the late 19th Century, the company added timepieces, silverware and other luxury items to its list of products. It is often quoted that ‘Diamonds are a girl’s best friend’ and Tiffany & Co has made this into reality. The company entered the diamond jewelry market in the early 19th Century where the growing trend of branded jewelry consumption resulted to the company’s growth (Silverstein & Fiske 2003). Recently, more and more consumers seek the superior service and trust that a brand can provide and when it comes to jewelry, Tiffany is their first choice. Tiffany’s products are considered the strongest brands in the jewelry market and the company has so far benefited from customer’s attitude, keeping in mind that only a few jewelry brands are recognized worldwide (Silverstein, et al. 2008). Comparison between Coach Inc. and Tiffany & Co. luxury goods companies Coach Inc and Tiffany & Co are two publicly listed luxury goods companies that have in the recent past created a name for themselves in as far as customer preference, trend and taste is concerned. As seen above, these two companies started from humble beginnings to become well established international companies with names that many of the consumers are after. In spite of being different in that they deal with different luxury products, Coach Inc and Tiffany & Co have made and are still making efforts to not only attract more customers but also retain the ones they currently have while expanding their customer base (McCahery & Vermeulen 2010). This is done by concentrating more on consumer opinions as well as perceptions of their products and brands. Both companies also strive to provide experiences their clientele will remember for as long as they live, with hopes of returning in future, in addition to passing the word around to other potential customers (Egner 2009). Coach Inc is a company dealing solely with handbags and leatherware while Tiffany & Co is a company solely dealing with jewelry and special items. All publicly listed luxury goods companies are international and are experiencing strong growth despite the recent recession period (Hoffman & Coste-Maniere 2011). Coach Inc. has at times been underestimated as it used to be based on the United States market. It has however managed to attract more aspirational clientele as compared to the highest priced luxury retailers since some of the company’s products have lower prices (Silverstein, et al. 2008). Contrary to Coach Inc.’s case, even though Tiffany’s has managed to retain most of its high end clientele who purchase its jewelry, many United States customers who purchase such ‘statement’ pieces never come back (McCahery & Vermeulen 2010). This is quite understandable considering the fact that this particular company deals in diamonds, which are the world’s most expensive gems. Another difference that exists between these two luxury goods companies is that even though they are both international and have managed to expand their businesses to most European nations, Coach Inc. has done better than Tiffany & Co. (Silverstein & Fiske 2003). The latter suffered its worst decline after minimizing on its annual earnings. Tiffany & Co. was also not able to find true success in European countries or the United States itself and was therefore not in a position of meeting the rising customer demand, as has other luxury goods companies such as Richemont and Coach Inc. (Silverstein, et al. 2008). The company has however managed to navigate the treacherous economy and is slowly getting back on its feet. Coach Inc and Tiffany & Co have been performing well in terms of sales and revenues. In 2011, Tiffany & Co recorded a net sales increase of approximately 20% during the first quarter while Coach Inc recorded an increase of 8.5%. Additionally, Tiffany & Co also reported a 33.1% increase on its profit in the course of the second quarter while Coach Inc reported a 14.5% increase on the same (Egner 2009). Illustrated below is a comparison table and chart for the two companies in relation to their sales, growth rate, revenue and profitability for the year 2011. Q1 represents the first quarter; Q2, the second quarter and so forth. TABLE 1: Tiffany & Co. (2011) Q1 Q2 Q3 Q4 Sales $750M $755M $758M $761M Growth Rate 20% 23% 25% 27% Revenue $1.2Billion $2.2 Billion $2.8 Billion $3.64 Billion Profitability 13.8% 14.5% 15.5% 15.7% Figure (a) TABLE 2: Coach Inc. (2011) Q1 Q2 Q3 Q4 Sales 950M 1.03M 1.05M 1.4M Growth Rate 8.5% 13.6% 14.4% 15.2% Revenue 3.97B 4.48B 4.51B 4.63B Profitability 13.8% 14.5% 15.5% 15.7% Figure (b) CONCLUSION So far, it has been a positive year for majority of companies that deal with or rather sell luxury goods to American consumers, such as Tiffany & Co., and Coach Inc. As the rest of the world is cautiously measuring its spending power due to recent recession pressures, the high income earning individuals who seem to patronize a country’s luxury retailers, have been shopping as if everything has been the same since business commenced in the past. Publicly-listed luxury goods companies such as Prada, Tiffany, & Co., Coach, Inc., and Armani have experienced consumer gravitation to different company outlets which have so far proved more profitable for the companies. It is only a few years ago when luxury retailers were suffering due to low sales. High end stores began reducing prices and in the end sales of luxury goods fell drastically. However, this scenario was not to last as now, majority of stores are focusing on luxury products as more and more customers go for the expensive goods. Publicly listed luxury goods companies tend to place high value on the quality of their products where minute detail is focused on in the course of the companies’ experience. Coach Inc. and Tiffany & Co. are not perfect but recent company earnings have indicated a lot of strength. Both companies have also maintained loyal customers who are apparently not affected by the economic pressure as compared to most individuals. Many publicly listed luxury goods companies have in the recent past proved resilient especially after the economic recession where they have dominated the United States luxury goods industry. While Coach Inc. is different from other leatherware companies in that it offers its clientele with high quality leather products, Tiffany & Co. differs from other fine jewelers by opening its doors to all types of clientele, who are warmly welcome. These 2 companies that have been studied in this research are aware of the fact that accessible and inviting environment tends to lure potential customers to return once they remember their pleasant experience. Coach Inc. and Tiffany & Co. are currently making all efforts continue offering its clientele with high quality and new products so as to take advantage of the increasing demand of branding amongst many consumers today. By so doing, these two publicly listed luxury goods companies will be able to offer to its customers, affordable luxury products without diluting their elite image. REFERENCES Cressy, R., Cumming, D., & Mallin, C. (2012). Entrepreneurship, Governance and Ethics. Germany: Springer. Egner, T. (2009). Strategy Analysis – Coach Inc. Munchen: GRIN Verlag. Eilon, S. (1999). Management Strategies: A Critique of Theories and Practices. Boston: Kluwer Academic. Hitt, M.A. (2010). Strategic Management: Competitiveness & Globalization, Concepts. 9th Edition. 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