How Coach Purses Came to Symbolize Middle-Class Aspirations in China

The iconic New York fashion brand took a creative approach to the Chinese market, and it paid off. But will this success last?

I first became familiar with Coach purses in my mid-teens, when my mother started buying up dozens of them before biannual trips back to Shanghai. They were the perfect gift -- stylish, durable, appropriately priced, and wildly popular in China, where the craze for designer bags had turned them into collateral at pawn shops and their counterfeiting into a veritable cottage industry.

During those early years, the brand abroad still operated under a strange, franchise-like structure: domestic retail stores -- one in Macau, eight in Hong Kong, and 15 on the mainland -- were managed directly by the ImagineX Group, a Guangzhou-based distributor of luxury goods. The partnership was industry standard; it gave the parent company a chance to test local waters at low risk, and the distributor entre and prestige. This period also marked the launch of a new flagship store on Queen's Road Central in Wan Chai: 50,000 square feet of svelte minimalism in Hong Kong's premier shopping district, meant to announce to all the big boys -- LVMH, PPR, Prada -- that Coach had arrived.

But at the same time, Coach was targeting a different market altogether. A Hermès bag starts at $800 and can easily reach the high four digits; Coach bags top out at $400. For the young urban professional in China's top-tier cities, a Coach purse was an affordable alternative. The trick was convincing them that it was also a fashionable one.

This turned out to be difficult. In the past, luxury goods were so named because they were constructed by expert craftsmen from rare materials. But after the Second World War, the dynamics shifted. The value of a brand grew to be not only a function of cost and labor, but of who had designed them, who was selling them, and who was wearing them. Coach lacked the pedigree of the big Italian and French designer houses; at heart, it was a solidly New York fashion brand. But this same middlebrow-ness left it free to experiment with promotion, online retail, factory stores, and ultimately, profit, while remaining true to its message in a way that would have been unimaginable for the likes of Chanel.

Which was not to say that Coach didn't also engage in the trappings of traditional retail marketing: There were advertisements in magazines and launch parties with appearances by B-list celebrities. Late last year, Coach signed Taiwanese mega-star Wang Leehom as an ambassador for their men's accessories line. New York-born and educated at Williams, Wang's command of English and pop idol good looks made him a natural frontman. The subsequent photo spreads were shot with a crisp lens in view of the Brooklyn Bridge  and featured Wang looking alternatively pensive, cool, and dashing while strolling the streets of lower Manhattan clutching oversized man-purses.

But Coach's very choice of Wang Leehom was a departure for a Western company. For decades, Chinese consumers had associated luxury goods with imports, to the extent that even homegrown labels featured Caucasian models. Unlike Starbucks, or McDonald's, which had to contend with existing tastes for say, fatty pork or wedgy potatoes, the luxury clothing and accessories market in China was, until the 90's, a tabula rasa.

So while conventional wisdom might have suggested a certain amount of "China-fication" -- does it really make sense to show Gwyneth Paltrow in an ad to people who barely know what a downward-facing dog is? -- in practice this was rare. Wang Leehom was one of the first Asian celebrities to sign an exclusive contract with a Western luxury brand, and he was quickly joined by the actress Fan Bingbing for Louis Vuitton and the actor Chow Yun-Fat for Hugo Boss.

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When I spoke with Coach executives in New York, I asked them about their strategy. How had they started out? What had they done to establish themselves as a brand worth coveting? Or phrased another way, what prevented me from flying to Shanghai, setting up shop, and calling it luxury?

The basic answer -- distilled through layers of corporate doublespeak - was that Coach had been particularly savvy when it came to their digital marketing efforts. While other companies struggled to offer a decent Chinese language website, Coach took to the country's social networks. They launched campaigns on Renren, a Facebook-like site, WeChat and Sina Weibo, soliciting feedback and raffling off purses. They asked fans to post pictures of themselves carrying Coach wares on TuDing, a knock-off version of Instagram.

But the most illuminating part of their strategy was the physical placement of retail stores. "Our goal is to be offered in image-enhancing locations wherever our customer chooses to shop," said Andrea Resnick, senior vice president of investor relations, "We are not exclusive but selective in our distribution." She went on to mention their flagship stores in Hong Kong and Shanghai, both gleaming beacons of sleek design and obsequious customer service, in proximity to high-end boutiques. The strategy seemed to be to set the tone at the upper end of the brand's pricing spectrum, where Coach competed with Cole Haan and Kate Spade, rather than the lower end, where Coach was blazing new trails in the netherworld of discount factory outlets. Still, in light of their strength in digital retail, the emphasis on outfitting commercial real estate was surprising. Even as the masses were increasingly buying online, Coach saw the traditional prestige store, with its high overhead, as a worthwhile investment and a key to their longevity.

In 2009, in a series of flashy leveraged buyouts, Coach Inc. re-acquired licensing rights from ImagineX, thus bringing its China businesses back into the fold. The press release that followed challenged itself to a goal of sales of over $250 million and at least 10 percent market share in Mainland China by 2013. Over the course of the next four years, Coach consolidated holdings, trained sales teams, and built a distribution center in Shanghai. They designed not only for their average consumer in China -- a 30 year old professional female with an annual income equivalent to $25,000 -- but also for those both more and less upscale. Some of these initiatives were lauded for their creative ambition and modern aesthetic. Others were met with mixed reviews. For instance, Coach's signature line -- a collection of purses emblazoned with the interlocking "C" logo, while financially successful, was criticized for being garish and status-whoring. Or as in the words of one very fashionable, faintly effete acquaintance of mine: "I hate Coach. It stinks of aspiration."

A decade after it first entered the Chinese market, Coach had become popular enough to encounter the Catch-22 that ultimately plagued all premium and luxury retailers: as a brand, their value derived in large part from being perceived as exclusive and prestigious. Yet as a business, their value derived from number of units sold. It was a haphazard balancing act. Err too much one way and you risked diluting the brand. Err too much the other, and soon you wouldn't have a brand at all.

The problem of brand dilution wasn't unique to Coach, nor to China. But the pace of new wealth generation meant that a brand whose access had been basically restricted to the globe-trotting elite in 2000, would ten years later be hanging off the arm of every housewife in Chongqing. And the buyer who had blindly purchased whatever their richest friends had been wearing in 2005, would be by 2013, drawn to niche labels recognized only by those in-the-know. As a consequence, many of the brands that made deep and early inroads into the Chinese market -- Louis Vuitton, Buick -- struggled in their second act. Even among them, Coach's low price point and mass marketing made it particularly vulnerable. In the much-lampooned image of Asian tourists laying siege to outlet malls, it was nearly always the eponymous example.

Despite these challenges, Coach closed out the 2000's with record sales and ambitions to open 30 new stores in China, this time in tier two cities like Nanning and Urumqi. When asked about overexposure, executives were nonchalant. There were more emerging markets to be conquered, more purses to be sold. Data had shown Coach customers to be remarkably loyal. But for me at least, the long term pitfalls remained: in an industry where jeans come in at a dollar a pop from the freight yards of Shenzhen and Hong Kong, to be sold at three thousand percent markup, isn't luxury just an illusion? And if it is, what happens when the veil drops?