Tapestry is deepening its penetration in China, undeterred by the collapse of the luxury market
SHANGHAI, Oct 26 (Reuters) – Baoji, an industrial city in northwest China with a population of 3 million, doesn’t fit most people’s idea of a commodity market luxury. Soon, however, it will house a store for the American brand Coach.
The store is one of 30 in China that the parent company of Coach Tapestry Inc (TPR.N) plans to open in the next 12 months, the company’s Asia-Pacific president Yann told Reuters. Bozec.
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 reluctant to tread, as well as for its timing – in the midst of a deep fall in luxury sales in China. This also follows the opening of around 60 Tapestry stores in China over the past two years.
It’s a business strategy that analysts say allows Tapestry, one of China’s biggest luxury retailers, to capitalize on its position as a purveyor of so-called “accessible luxury” at a time when many brands high-end are upmarket and Chinese. consumers have become more cost-conscious.
Brands ranging from Louis Vuitton (LVMH.PA) to Gucci (PRTP.PA) and Burberry (BRBY.L) have an established presence in China’s biggest metropolises such as Beijing and Shanghai as well as second-tier cities like Wuhan and Xi’an.
In contrast, cities at the bottom of the rankings – determined by metrics such as economic output, consumer behavior and population size – were avoided, seen by many brands as lacking the luxury malls that demands their stamp of exclusivity.
But where a Louis Vuitton bag or a Gucci dress can sell for thousands of dollars, Tapestry’s prices are lower. Coach largely sells bags under $1,000 while Kate Spade, another Tapestry brand, sells its dresses for around several hundred dollars.
Baoji will be Tapestry’s second foray into a fourth-tier city after opening a Coach store two years ago in Daqing, a northeastern city 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, tier four cities, so we think there’s a cluster 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,” Bozec said.
BOOM, THEN COLLAPSE
China’s border closures throughout the pandemic have diverted much of the luxury spending that would have taken place overseas to the country. The domestic market has doubled in two years to reach 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 globally last year were in China.
But luxury sales in China are now collapsing – with consumer sentiment hit hard by the country’s zero-COVID policy and frequent lockdowns, a slowing global economy as well as regulatory crackdowns on sectors that have led to spikes youth unemployment.
The tapestry was not spared. It saw sales in China fall 32% for the quarter ended July 2 from the same period a year earlier. Sales in China typically account for around one-fifth of its overall sales.
“We know COVID makes things unpredictable, but nonetheless, 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 key growth market as Tapestry seeks to boost global revenue to $8 billion in fiscal 2025 from $6.7 billion for the year. which has just ended.
Among Tapestry’s closest competitors Ralph Lauren (RL.N) says it is sticking to plans, set out in 2018, to have 150 stores in Greater China by the end of next April, up from 135 today, focusing on the leading cities. .
However, compared to the past two years, most luxury brands have remained silent on opening new stores in China.
“Generally, the shutdowns and declining consumer sentiment have encouraged retailers to pause and reassess their expansion plans,” said James Macdonald, head of Savills Research China.
Michael Kors and Tory Burch – both competitors in the “accessible 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 handbags 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” at select Coach stores to allow customers to stream their shopping experience to social media followers, said Bozec.
Analysts see Tapestry’s pursuit of more stores as an opportunity to cement its lead in brand penetration in China.
The company has 360 stores in 80 cities in China. By contrast, Capri Holdings, owner of Michael Kors, had 288 stores in 2020. Tory Burch lists 68 stores in mainland China on its 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 can benefit from price increases of up to 60% among top luxury brands in recent years, making Coach more attractive in terms of value.
“Coach’s footprint is still not saturated with the opportunity,” he added.
Reporting by Casey Hall; Editing by Brenda Goh and Edwina Gibbs
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