Accessories, once just minor characters in most women’s wardrobes, now take center stage each fashion season. In particular, handbags are currently playing a lead role in women’s wardrobes, a striking change from only a few years ago when handbags were still a mostly utilitarian, day-to-day workhorse for women, not the outfit star of today. Now, women across all economic strata own multiple handbags in myriad styles, ranging from hobos and totes to wristlets and clutches, and they swap them out to complete their look the same way they do shoes. Indeed, the handbag is the ‘new’ shoe for American women. Just as there is a status difference between a pair of Nine West pumps and a pair of Manolo Blahnik stilettos, handbags too bring with them significant status differences which are now clearly etched in consumers minds. American women have fully embraced the era of the status handbag. 

       Most women want their handbag to do more than just communicate their personal style; they also want it to broadcast their personal social status. The coded language of a handbag’s brand accomplishes precisely that. This need for a bag that both looks good and marks the wearer’s high status has driven seemingly unending price increases in the handbag category over the past few years. 

       However, with the economic pressure Americans are facing - $425 billion in adjustable rate mortgage and another $600 billion in second-mortgage debt resetting to higher interest rates in 2006, credit card minimum payments doubling to 2% of the outstanding balance, gasoline reaching $3 a gallon – will women continue to spend into the triple-digits and beyond for new fall handbags?

       Handbags are a phenomenon in today’s retail industry, and everyone wants a piece of the action because they bring high ticket prices and good margins to the floor. But, the real players in this business are the branded firms whose heritages start with leather goods: Gucci, Coach, Louis Vuitton, Hermes. Gucci and Coach, especially, have radically transformed in the last ten years; each now has an array of handbag styles and price points unthinkable in 1996. These are among the first brands to pop into a woman’s head when she considers buying a status handbag, and, yet, their price points couldn’t be less similar. If Coach is affordable American luxury with every handbag priced under $1000, Gucci embodies European exclusivity with prices now breaking the $10,000 mark. Both will do well this fall, but the current economic climate shapes their success in very different ways.

       Back in 2001, the price of a leather hobo at Coach was $258. Compare that to today, when the price rings up at $298. Not a bad 16% increase over the five years. Yet, Gucci has done even better. While in 2001 a similar hobo at Gucci came in well under $750 at only $640, this year’s like hobo now pushes through the $1000 mark to $1050. That 64% price increase means that the substitution cost between the two brands is vastly different for the average 2006 consumer. Whereas in 2001 splurging on a Gucci bag cost her only 1.5 extra Coach bags, it now costs her 2.5.

       If we extrapolate this to a much larger sample of each company’s products, the results are even more striking. I looked at the full Fall 2006 Coach handbag line-up - an assortment available nationwide in nearly all their retail stores and online - for a total of 100 handbags. For Gucci, I catalogued the 50-handbag assortment available at the Neiman Marcus website. My goal was to find a good match for nationwide availability, acknowledging that the Neiman’s e-commerce sample may skew prices downward because the highest-end product is often available only in brick-and-mortar stores. Nonetheless, the two samples do make a good comparison set and offer up very different pictures of relative affordability within the status handbag category in this Fall 2006 season. 

       On average Gucci bags are 543% more expense than Coach handbags. At the high and low extremes, the bags in each brand’s assortment differ in price by more than 580%! The most expensive Coach bags available in early Fall 2006 priced at $798, and none of their bags break the $1000 mark. The most expensive Gucci bag selling at Neiman’s online is $4700, far below Gucci’s actual maximum prices which break $10,000. Only seven Fall 2006 Gucci bags fall below $1000 at Neiman’s web store. Yes, both brands’ handbags are expensive for most American women, but with price differences of this magnitude, what expensive means becomes more relative than absolute. 

       At the very highest end, Coach is still affordable compared to Gucci, especially for consumers who bought Gucci in past years when price points were more varied and generally lower. What we’re seeing here is a definite bifurcation of the status handbag category into the ultra-exclusive on one side and the more ‘moderate,’ simply exclusive on the other. Gucci’s prices defend and even enhance its standing as an elite Italian brand in the ultra-exclusive arena, a standing without which its products carry substantially lower value. Too many women carrying Gucci handbags actually dilutes its economic position, and thus the gaining democratization of its handbags seen only three years ago has been firmly stopped through sharply higher retail prices. 

       On the flip side, such dramatic price increases by the ultra-exclusive status bag players like Gucci give Coach ample room to raise its prices while remaining the most affordable luxury player on the block. Indeed, even as they break beyond the $750 price point, Coach’s $798 bags cost significantly less than what a woman used to buying a Gucci would expect to pay for the same styles and materials. Thus, a high level of value is perceived and, critically to Coach’s success, also a high level of status. Unlike the numerous new entrants in the ‘moderate’ luxury marketplace, Coach is a highly recognizable and valued brand by other women. Their long heritage as a branded leather goods maker sets the foundation for their brand positioning. Great design and strong fashion focus elevates it. In short, the woman choosing a Coach bag, while spending less, will still be recognized as spending. 

       This clear positioning as an affordable status handbag holds tremendous opportunity for Coach over the long-term. First, pricing can move up in tandem with the increases made by ultra-exclusive status bags. Second, product can continue to elevate in sophistication because the prices are there to support the incremental cost, and more sophisticated product will drive even greater competitiveness with ultra-exclusive handbag brands. Third, geographic expansion makes sense in both first-tier markets like Hong Kong and New York as well as second-tier cities like St. Louis and Fresno because the breadth in product and in price ensures the right assortment for all locations. As prices, product, and expansion all move forward, then, the brand should only get stronger because the most luxurious products at the high-end halo the entry point products, which themselves are distinct in their design and styling. 

       Thus, as we enter into Fall 2006, both brands should thrive. Spending at the top tier of retail in luxury goods has been unstoppable and shows no signs of slowing. The middle category of American consumers is coming under pressure, but with handbags now top dog of the wardrobe rather than a utilitarian afterthought, women won’t stop buying them each season. However, the brands they seek out will change as prices once deemed possible become unattainable. When searching for their new fall handbags, women across all income brackets will find that Coach’s offerings resonate with a perfect pitch of great style, affordable prices, and status to boot. Therefore, Coach, already on a retail roll with its strong performance during the past few years, has before it a whole new niche to exploit in the marketplace: that of the ‘moderate’ status handbag provider.