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Tapestry, Inc. is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry owns the Coach, Kate Spade, and Stuart Weitzman brands. The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry, and other lifestyle products.
The Coach segment includes worldwide sales of Coach brand products to customers through Coach-operated stores, including the Internet, concession shop-in-shops, and sales to wholesale customers and independent third-party distributors. The Kate Spade segment includes worldwide sales primarily of Kate Spade New York brand products to customers through Kate Spade operated stores, including the Internet, concession shop-in-shops, independent third-party distributors, and to wholesale customers. The Stuart Weitzman segment includes worldwide sales of Stuart Weitzman brand products primarily to wholesale customers, numerous independent third-party distributors, and through Stuart Weitzman operated stores, including the Internet.
Demand for luxury, fashion goods can be an indicator of flourishing economies. It is observed that during boom times, consumers with higher incomes tend to consume more high-end goods like leather handbags, designer clothes, branded watches, etc. Luxury goods are cyclical and correlate with GDP in specific regions, often exaggerating the up- and down-swings in the economy. As the global economy recovers, we expect the luxury goods market to return to pre-recessionary growth levels of 7-8% per year.
Luxury consumption in China has seen double-digit growth in recent years as a result of rapid economic growth and rising standards of living. Despite weak macroeconomic conditions globally and a threat to China's economy from surging inflation, luxury goods sales continue to grow strong in China. China is poised to become the second-largest luxury market by 2019, according to Euromonitor, and the Chinese, the biggest spenders on luxury goods worldwide, now account for 30%-50% of global luxury sales, with 80% of their purchases made abroad.
Emerging markets will see the highest growth in new openings of directly-operated stores in the coming years. Tapestry is aiming for expansion into areas where it feels it is underpenetrated, such as Greater China, South East Asia, and Europe. To this end, TPR expects to add 30 to 40 Kate Spade stores globally in FY 2020, including those that will be acquired in Australia, Malaysia, and Singapore.
The trend for logos had fallen out of fashion in the recent past, but this seems to be reversing now, benefiting a brand like Coach. Keeping this in mind, the company successfully relaunched its Signature pattern in Q3 2018. Coach has plans to build upon this, including an expanded range of small leather goods, which should ensure growth for the brand.
Affordable luxury brands and private labels have held up solidly during the current market conditions, while luxury and premium end companies, including Louis Vuitton and Hermes, have all reported slowing sales. The luxury market has been hit by a renewed sense of consumer ethics, which has seen some consumers turning away from luxurious lifestyles to take on a "less is more" approach.
This trend was observed even before the economic downturn, with consumers shying away from luxury items, hinting that consumers may not return to buy luxury goods in the near future and may opt for more understated choices.