Japan's Battle of the Luxe Bags

Like two women fighting over the last hot bag at a department-store sale, Coach and Louis Vuitton, makers of luxury handbags, are in a tussle--over Japanese shoppers. In early March, Coach complained to the Japanese Fair Trade Commission (JFTC) that LVMH Moet Hennessy Louis Vuitton was, among other things, strong-arming department stores, threatening to pull the Louis Vuitton brand if Coach opened or expanded within shops where Vuitton already sells.

At stake is the indispensable Japanese market: Japan's consumers spend more money on luxury goods than anyone else in the world, and they account for a monster portion of revenue, 25% to 30%, for both companies. Coach had total sales of $1.32 billion last fiscal year, LVMH $16.18 billion. Coach often tests its hottest designs in Japan. After shoppers responded well to the Signature Collection in 2001, for instance, the company increased production of those bags in Japan and the U.S.

In recent years, Coach has won over shoppers with its innovative styles and what Coach Japan CEO Ian Bickley calls "accessible pricing." (Small Coach bags start at $275; small Louis Vuitton bags average about $872.) Sales have tripled since 2001; and two years ago, the company bumped Gucci to claim the No. 2 spot for imported bags and accessories in Japan. Though it has a way to go to catch Louis Vuitton--Coach has an 8% share in Japan, and LV has 28%--the company plans to add another 40 to its current 107 Japanese locations over the next four years.

Neither Coach Japan nor LVMH would comment on the JFTC investigation, which will conclude over the next six months. --By Nellie Huang