Tapestry deepens push into China, undeterred by luxury market slump

SHANGHAI, Oct 26 (Reuters) – Baoji, an industrial city in northwest China with a population of 3 million, does not fit most people’s idea of ​​a luxury goods market. However, it will soon house a store of the American brand Coach.

The store is one of 30 in China that Coach’s parent company, Tapestry Inc. (TPR.N) is looking to open within the next 12 months, the company’s president for Asia Pacific, Yann Bozec, told Reuters.

Tapestry’s planned expansion into China is unusual, both for the company’s willingness to tap into lower-tier cities where most Western competitors are loath to tread, and for its opportunity, coming amid deep drop in luxury sales in China. It also follows some 60 Tapestry store openings in China in the past two years.

It’s a business strategy that analysts say allows Tapestry, one of China’s largest luxury retailers, to capitalize on its position as a purveyor of so-called “affordable luxury” at a time when many high-end brands have become more fancy and chinese. consumers have become more cost conscious.

Louis Vuitton brands (LVMH.PA) to Gucci (PRTP.PA) and Burberry (BRBY.L) they have an established presence in China’s largest metropolises such as Beijing and Shanghai, as well as second-tier cities such as Wuhan and Xi’an.

In contrast, cities at the lower end of the tier rankings, determined by metrics such as economic output, consumer behavior and population size, have been shunned as many brands feel they lack the shopping malls of luxury that demands its prestige of exclusivity.

But where a Louis Vuitton bag or Gucci dress can sell for thousands of dollars, Tapestry’s price points are lower. Coach primarily sells bags under $1,000, while Kate Spade, another Tapestry brand, lists its dresses for around several hundred dollars.

Baoji will be Tapestry’s second foray into a fourth-tier city after it opened a Coach store two years ago in Daqing, a city in the northeast known as the “oil capital of China.” Tapestry also plans to consider other tier four cities as candidates for the 30 new stores this fiscal year.

“A lot of our existing customers are already from tier three or four cities, so we think there’s a group there that will allow us to scale. We never want to be exclusive or selective, we want to be close to where our customers are,” he said. Bozec.

BOOM, THEN FALL

China’s border closures during the pandemic diverted much luxury spending that would have taken place abroad back home. The domestic market doubled in two years to be worth 471 billion yuan ($65 billion) in annual revenue in 2021, according to data from Bain & Co.

Research from real estate firm Savills also shows that 55% of luxury store openings in the world last year took place in China.

But sales of luxury goods in China are now collapsing, with consumer confidence hit hard by the country’s zero-COVID policy and frequent lockdowns, a slowing global economy and regulatory crackdowns in sectors that have caused spikes in prices. youth unemployment.

Tapestry has not been immune. Sales in China were down 32% in the quarter ending July 2 from the same period a year earlier. Sales in China generally account for about a fifth of its total sales.

“We know that COVID is making things unpredictable, yet our customer studies and economic research are incredibly optimistic about the long-term growth potential of the Chinese market,” Bozec said.

He declined to comment on investment figures for China, a top growth market, as Tapestry seeks to boost global revenue to $8 billion in fiscal 2025 from $6.7 billion in the year just ended. determine.

CEMENTING A LEAD

Among Tapestry’s closest competitors, Ralph Lauren (RL.N) says it is sticking to plans, outlined in 2018, to have 150 stores in Greater China by the end of next April, up from 135 now, with a focus on first-tier cities.

However, compared to the past two years, most luxury brands have been quiet about opening new stores in China.

“Overall, the lockdowns and falling consumer confidence have encouraged retailers to pause and reassess expansion plans,” said James Macdonald, director of Savills Research China.

Michael Kors and Tory Burch, both competitors in the “affordable luxury” segment, did not respond to Reuters requests for comment on their China plans.

Tapestry also intends to expand its product lines in China, such as adding bags to its offerings for its third Stuart Weitzman brand.

Another change, in a nod to Chinese consumer tastes, will be the introduction of “live streaming studios” in some Coach stores to allow customers to broadcast their shopping experience to social media followers, Bozec said.

Analysts see Tapestry’s search for more stores as an opportunity to consolidate its leadership in brand penetration in China.

The company has 360 stores in 80 cities in China. By contrast, Capri Holdings, which owns Michael Kors, had 288 stores as of 2020. Tory Burch lists 68 mainland Chinese stores on her website.

Coach’s luxury market share in China is also more than double that of Michael Kors and more than triple that of Ralph Lauren and Tory Burch, according to data from Euromonitor.

Oliver Chen, an analyst at Cowen, said Tapestry stands to benefit from price increases of up to 60% among top-tier luxury brands in recent years that make Coach look more attractive in value terms.

The coach’s “footprint is not yet saturated in relation to opportunity,” he added.

Information from Casey Hall; Edited by Brenda Goh and Edwina Gibbs

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