Coach plans to move manufacturing out of China
US leathergoods brand Coach has announced plans to shift up to half of its manufacturing out of China to escape rising labour costs. The company is at the same time moving aggressively to expand its sales in the country.
Lew Frankfort, Coach’s chief executive, said that over the next five years the company would cut its China production to 40-50% of its total from 85% at present by opening factories in lower-wage economies including India, Vietnam and the Philippines.
At the same time, Coach is aiming to make annual sales of $500 million in China within the next three years.
Mr Frankfort said: “We are subject to rapid wage increases in China among employees working in the manufacturing sector, which we support. We work with factories to offset high labour costs through improved efficiency and lean manufacturing.
“We are beginning to diversify production out of China into other Asia countries that are not enjoying that level of prosperity.”
Mr Frankfort was speaking at a conference of the Committee of 100, a Chinese-American group in New York.
The Chinese government is trying to encourage a shift in the economy from being heavily export-led to depending more on domestic consumption. As part of that process it has encouraged a substantial rise in wages in coastal manufacturing cities such as Shenzhen in the past year.
Li & Fung, a Hong Kong-based consumer goods sourcing and logistics company, said in March that wages had risen by 20 per cent in China this year, heralding “a new era in sourcing with higher prices”.
Coach’s sales in China doubled last year to $100 million and it is aiming to boost revenues to $500 million by 2014 and secure a 10% share of the luxury accessories market.
Coach has nine stores in Hong Kong, 44 in mainland China, and is planning to add 11 new outlets in the current quarter.
“We are pacing our growth. We could profitably open twice or three times the number of stores we open each year,” Mr Frankfort said.
It is especially keen to tap into the market for men’s handbags. Coach says that men account for 45% of spending on handbags and accessories in mainland China, whereas they make up only 25% across Asia and just 15% globally.
In order to raise its profile Coach also said this week that it would list its shares in Hong Kong.
