Coe's Store Global Strategy

Coe’s Store

Coe’s store is a furniture lease-own-chain which has just opened its 1000th store in South Tucson. It currently operates in US and Canada with over $2 billion in annual revenues. The company has a competitive advantage over its competitors in customers conversion since more than half of its customers become owners by the end of their lease, comparing with 25% for others’. In addition, Coe’s operates with a shorter contract period resulting in higher fee incomes, as Coe’s price is normally 60-90% higher than traditional retailers, and also lower operating costs. Recently, Coe’s decided to expand abroad in order to capture higher volume and diversify its market risk. It is currently deciding between UK and Mexico.

It is not easy for the company to replicate its current strategy in other parts of the world. That being said, Coe’s needs to analyze the potential markets carefully; which country is most relevant to its current operation by evaluating distances from its domicile country using the CAGE framework. To evaluate the administrative distance, UK has an advantage over Mexico since its regulations (example) is more similar to those of the US. According to Carl, Coe’s is debating whether the furniture lease-to-own business is legal in Mexico. Therefore, Coe’s needs to do more research to better anticipate any regulatory issues that may arise if they operate in Mexico in the future. In terms of the culture distance, there are many Mexicans living across the US. These people have relatives in Mexico and they regularly communicate among one another. Therefore, Mexicans should be familiar with Coe’s stores from their relatives in the US and expect Coe’s to open the stores there. On the other hand, the British have similar cultures to Americans; the similar ethnic groups, their lifestyles and their high standards of living. The British tend to be familiar with furniture lease-to-own business and have been using the service for some time. For the geographic distance, although Mexico is closer to the US, but in terms of infrastructure, the UK possesses more similarity since it is a developed country like the US. Analyzing the economic distance, using GDP per capita as a benchmark (see figure 1 below), while the UK’s GDP per capita is ~16% lower than that of the US, they are still in a comparable level,  while Mexico’s is far below (~80% lower) the two. Looking at these numbers help us estimate the customers’ ability to pay the rent. In the past, Coe’s used to invest in Puerto Rico and had a problem collecting the rent payments; some customers walked away with the products. That being said, Puerto Rico has a higher GDP per capita than Mexico, $23,678 vs. $10,174 respectively. This demonstrates that Coe’s might be able to face the same problem with Mexican customers if it operates in the country. On the contrary, the British have purchasing power similar to American’s and they have experienced similar economic downturns which will advocate furniture rental business. In terms of competition, while Coe’s have no direct competitors in Mexico, it should face high competition in the UK. After analyzing the pros and cons for both countries, the UK’s furniture rental market has more relevant/closer distance to Coe’s existing market. Also, there is a potential upside of this option; Coe’s can learn from its business in the UK when it wish to expand its operation in Europe in the future.