Tapestry turnaround plans speed focus on digital growth - Just Style
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Tapestry turnaround plans speed focus on digital growth

By Beth Wright 13 Aug 2020

Coach brand owner Tapestry Inc has embarked on a new multi-year turnaround plan to cut costs and focus on digital growth as shoppers continue to shift from stores to e-commerce.

The company, which also owns the Kate Spade and Stuart Weitzman brands, outlined its new Acceleration Program while revealing that strong online sales helped it to a better-than-expected fourth quarter.

Its new goal is to sharpen its focus on each of the brands’ customers, simplify internal processes to react more quickly to their changing needs, and build data and analytics capabilities to drive decision-making, increase efficiency, and better engage with them on digital platforms.

It will also rethink the role of stores with “an intent to optimise its fleet” – but did not share any details as to how many locations may be affected.

“Looking forward, Tapestry’s next chapter of growth is ours to write,” said interim CEO Joanne Crevoiserat. “While the backdrop remains volatile, it has not changed our long-term objectives. Rather, it has been a catalyst to accelerate our strategic agenda.

“Through our Acceleration Program, we are transforming into a world-class consumer centric organisation that is more agile and data-driven with a digital-first mindset. We believe these initiatives will create stronger connections with our customers, fuelling accelerated growth and profitability for Tapestry and each of our brands.”

The group outlined a series of key strategies as part of the programme. For Coach, it will look to accelerate growth in China through more focused assortments and a disciplined approach to promotions.

For Kate Spade, Tapestry aims to grow handbags and leathergoods by reintroducing what it calls non-negotiable brand elements, while at Stuart Weitzman, it will focus on renewing the brand’s reputation for fit, comfort and quality, and growing key categories such as boots, booties and sandals. It will also expand the casual assortment, while simplifying the brand’s product offering.

The company estimates that it will realise about $300m in gross run rate expense savings from these initiatives, including $200m projected for fiscal 2021. It also expects to incur about $100-$115m in additional charges under the Acceleration Program, most of which will be recorded in fiscal 2021.

Financial results

The move comes as the company saw sales slump 53% to $715m in the fourth quarter to 27 June, compared to $1.51bn in the prior year, with declines across all brands.

Sales more than halved at Coach, falling to $517m from $1.1bn the year before; and at Kate Spade, dropping to $164m from $332m. The sales for Stuart Weitzman, meanwhile, was an even worse 61%, plummeting to $33m from $85m a year ago. 

However, Tapestry saw strong e-commerce growth, with digital sales increasing triple digits versus the prior year. It also returned to positive year-over-year sales growth in mainland China during the quarter.

Group gross margin, meanwhile, expanded to 73.6% from 69.7% in the quarter, while net loss amounted to $293.8m, compared to net income of $148.9m.

For the full year, Tapestry posted a net sales decline of 17.7% to $4.96bn from $6.03bn the year before.

Net sales for Coach fell to $3.53bn from $4.27bn, while those at Kate Spade fell to $1.15bn from $1.37bn, and sales at Stuart Weitzman tumbled to $286m from $389m.

Gross margin for the year on a reported basis was 65.3% compared to 67.3%. The company swung to a net loss of $652.1m, compared to net income of $643.4m a year earlier.

Tapestry did not provide guidance for the year ahead but Crevoiserat said it could expect a return to sustained topline growth in the second half of fiscal 2021, with bottom line growth in each of fiscal 2021, 2022 and 2023.

“We have a clear vision, strong teams and three powerful brands supported by Tapestry’s unique, enabling platform. I am confident that our strategy is the right one for our future. We are committed to strengthening our brands and organisation by focusing first and foremost on the consumer, leveraging digital and data more fully, and creating a culture of empowerment and entrepreneurship to enhance responsiveness.”

Willingness to adapt

Neil Saunders, managing director of GlobalData Retail, notes that as expected, the pandemic pushed down sales across all of Tapestry’s divisions.

“Consumers were spending – but they were not, by and large, spending on the things Tapestry sells”

“There was very little Tapestry could have done to engineer better numbers as the results were due to factors firmly beyond its control. Early in the quarter, the closure of stores removed a vital sales channel from the mix for a significant period; this reduced footfall and sapped demand. Later in the quarter, as stores reopened, trade did not normalise. Sales remained firmly down as many consumers turned their backs on clothing, accessories and footwear. This is in spite of the fact that household incomes were fairly solid across most of the period, largely because of enhanced benefits. Consumers were spending – but they were not, by and large, spending on the things Tapestry sells.”

The latter trend is worrying, Saunders adds as, thanks to dramatic changes in patterns of work and socialising, it suggests that it could be quite some time before buying levels return to pre-pandemic levels.

“Coach is the prime example of this as, from our data, around 67% of its sales were driven by some form of external event whether that be work, going out, or specific events and occasions,” he explains. “The demand for footwear has, for similar reasons, declined even faster. This is why sales at Stuart Weitzman, which sells a lot of discretionary occasion-oriented product, are down so sharply. Kate Spade is also buffeted by similar trends, albeit to a slightly lesser extent.

“The good news is that within North America and Europe, some of these lost sales are now being recaptured as a few old routines are reinstated or as consumers prepare to, at some point, return to the outside world. It is also true that, regardless of external circumstances, some shoppers are treating themselves to new handbags, accessories and apparel to make up for the misery of the pandemic. However, neither of these dynamics has completely offset the wider dip in demand and nor will they until a sense of greater normality resumes.”

In China, where things have become more normalised, trade has come back, Saunders says, adding Tapestry managed to return to positive year-over-year sales growth. “This provides a ray of hope although we would caution that China is much further ahead on the ‘pandemic curve’ than a lot of countries and has the advantage of very strong underlying demand for luxury goods that is simply not present in key Western markets. As such, we cannot see the US following the exact pathway of recovery in China.”

He adds one positive that has come out of the crisis is Tapestry’s willingness to adapt.

“The company is putting significant effort into enhancing both the back and front ends of its digital operations”

“The company is putting significant effort into enhancing both the back and front ends of its digital operations, partly because sales increased by triple digits as consumers shifted from stores to e-commerce. From a customer point of view, this should make the online experience more engaging and interesting. Over the medium term this gives Tapestry scope to reduce store numbers and reduce operating costs.

“Fortunately, against this choppy backdrop, Tapestry is in reasonable financial shape and has a good level of liquidity. However, the recent turmoil at the top of the organisation is unhelpful and the company needs to get its house in order quickly so that it has strong and stable leadership to see it through the many challenges that lie ahead.”

Tapestry CEO Jide Zeitlin resigned from his role last month after less than a year at the helm of the New York-based apparel and accessories firm.