Tapestry, Inc.’s China Conundrum: Balancing Multiple Brands in a Changing Market

This week, Tapestry, Inc. — owner of Coach, Kate Spade, and Stuart Weitzman — reported quarterly earnings that exceeded market expectations but exposed weaknesses in Kate Spade due in no small part to tariffs on its China-made clothing and jewelry in the United States.

Coach, however, posted gains in China and Europe that mitigated some of the damage Tapestry saw from a struggling Kate Spade brand, with same-store sales increasing 1 percent in the quarter. Tapestry-owned footwear brand Stuart Weitzman, too, experienced a weak quarter due to “softer wholesale demand and continued operational challenges.”

In response to Kate Spade’s woes, Tapestry CEO Jide Zeitlin said he plans to review the brand and turn around its flagging same-store sales, which have fallen since Tapestry purchased the brand two years ago.

Looking at Tapestry’s recent performance, China’s central importance to the company becomes even clearer — both in terms of the impact of U.S. tariffs on brands that manufacture in China and consumer purchases both there and abroad. Coach, which entered the China market two decades ago, has shown itself to be somewhat resilient in the Greater China region this year given the ongoing U.S.-China trade war, Hong Kong protests, and a weaker yuan.

Much of this performance comes down to a good reception in China to the designs of Coach Creative Director Stuart Vevers and popularity among the country’s middle class, both in terms of domestic shopping and purchases at boutiques and outlet malls abroad.

This is where Tapestry faces a China conundrum — how best to take on the China market when its performance in that market is so lopsided. For its part, Tapestry is trying to improve its fortunes in mainland China by going digital. Next month, Coach is set to re-launch its Tmall for the third time on the ecommerce giant’s Luxury Pavilion, already home to Stuart Weitzman, ahead of a similar launch for Kate Spade due early next year.

As Noam Paransky, chief digital officer at Tapestry, recently put it, Tapestry’s online push in China is an attempt to connect with a broader audience and, presumably, collect important customer data. Said Paransky, “We are committed to offering a compelling experience for Chinese consumers wherever they choose to shop: our stores, direct brand and third-party websites or social platforms.”

What Tapestry will likely need to do in order to turn around Kate Spade’s fortunes — and, to a lesser extent, Stuart Weitzman’s — is to double down on its China efforts aimed at younger consumers, which will likely center in the digital realm. Much of this will be tied to how well Coach’s third launch on Tmall fares next month, and whether the company can build enthusiasm among more active shoppers in the 20-35 age bracket. Currently, Kate Spade is heavily invested in the North American market, which has seen weaker consumption by Chinese tourist-shoppers this year.

Now, all eyes at Tapestry are sure to be on Tmall’s Luxury Pavilion, as it indicates what Kate Spade can possibly expect when it launches there next year.