Tapestry’s turbulent year included international expansion and gains at its most lucrative brand (Coach), multiple chief executive changes, (including former head honcho Victor Luis and most recently Anna Bakst at Kate Spade), stock losses (more than 20 percent) and a few noticeable faces endorsing the brand. Like Jennifer Lopez, Michael B. Jordan and Kendall Jenner.
That’s because sales at Kate Spade have failed to impress since the company — then still called Coach — bought the apparel and accessories brand in 2017. Revenues fell 6 percent during Tapestry’s most recent quarter to $306 million, down from $325 million a year earlier. But Bakst’s abrupt outing in December signals Tapestry is on the move.
“Trying to turn Kate Spade around is clearly the focus right now,” David Swartz, consumer equity analyst at Morningstar, told WWD. “When they originally bought Kate Spade, they thought it would take about two years to fix….But Kate Spade seems to be taking longer than that. And I don’t know that they have a clear view right now on when it’s going to pick up again.”
Jide Zeitlin, who was named ceo of Tapestry in September, taking the place of Luis, has his work cut out for him. He will need to rebuild the Kate Spade brand — a business that is heavily dependent on wholesale and department stores — in the midst of retail’s continuing shift online. Not only that, but outside of Japan, Kate Spade is relatively unknown internationally, making it difficult for the brand to curb losses at home with gains in other territories, something that the Coach brand is able to do.
Ike Boruchow, senior retail analyst at Wells Fargo, said that Zeitlin’s first task for Spade will be to update the assortment.
“You don’t go heavy into customer acquisition until you fix product and merchandising,” he explained. “We already know she doesn’t like the merchandising. We already know she doesn’t like the product they have on the floor. So first things first: You have to get that right before you can start going aggressively into growth mode. And right now we know they haven’t fixed anything, because there’s no leadership there right now.”
During last month’s news of Bakst’s departure, Tapestry said it was moving ahead in its ceo search. That includes looking outside the company for new talent.
But there’s still the issue of product. The new leader at Kate Spade will need to focus on bringing the brand “back to its core,” Boruchow said.
“They deviated from that. It’s like they tried to make Kate Spade too much like the Coach brand,” he said. “It’s a completely different customer. It’s a different brand. It stands for different things.”
One example, is the novelty business, or handbags shaped like apples or taxi cabs.
“Victor [Luis’] strategy was to eliminate the novelty business,” Boruchow said. “He thought it was unsophisticated. So they took that business away. They basically brought it to nothing. [But] what they learned in hindsight, was that [the customer] liked it. Not only did she buy it, it kept her coming into the store. It kept her engagement. On a monthly basis she checks the web site. She’d walk into the store and maybe she bought a novelty purse. But maybe she bought a novelty purse and she bought a regular purse.”
Luis’ strategy for new merchandise, however, included onboarding Nicola Glass as the new creative director at Kate Spade in late 2017. While the aesthetic was clearly different — Luis described it as “optimistic femininity”— it failed to impress consumers.
“Even after the hired Nicola Glass as the creative director at Kate Spade, they were kind of blaming the problems at Kate Spade on the previous creative director, saying that they had old inventory in the stores and they just needed to work through that. And then, when they got the new stuff in there, sales would pick up,” Swartz said. “But that really hasn’t happened.”
As recently as August 2019, Luis told WWD that Glass’ collection has only been full-price “basically for six months. It’s basically been one season. And now they’re rolling out a go-forward, starting this month, a lot more newness, much more aggressively, across the outlet channel, as we execute her vision in a multichannel way.”
Swartz, however, wasn’t convinced.
“The inventory shouldn’t move that slowly,” he said.
Moreover, Tapestry will need to prove to the market that it can manage multiple brands under one umbrella, something that a handful of fashion companies, including rival Capri, VF Corp. and PVH, have attempted to do. Some of them not so successfully. But perhaps all of them in an effort to emulate the likes of luxury fashion houses, such as LVMH and Kering.
“It’s always been a difficult thing in the softlines world,” said Omar Saad, senior managing director at investment bank Evercore. “It’s hard to get fashion and trends and the season and inventory and the channels and the right marketing and the right capabilities, and all of those things right for one brand, season after season. It’s really hard to get it right across multiple brands.
“If you take the same designers and the same marketing people and you say, ‘Hey, you’re in charge of marketing for this brand and this brand and this brand and 40 others,’ each brand starts to lose its own voice,” Saad added.
There’s also the question of whether Zeitlin will remain the permanent ceo of Tapestry. While he wasn’t named interim chief executive officer, Zeitlin also wasn’t officially named a permanent ceo. It may be the board’s way of testing out the new ceo, Boruchow said.
But others argue that new leadership might be what’s best for Tapestry. Swartz pointed out that, while Zeitlin is new in the role of ceo, he’s not new to Tapestry. In fact, he’s been on the board for 13 years.
“He was intimately involved in acquisition of Kate Spade,” Swartz said. “He really is part of the old guard. He was part of the board that got them in this mess in the first place.
“It was a big mistake [for Coach] to have acquired Kate Spade in the first place,” he added. “I think at some point they’re going to have to say the strategy is not working. So they’ll probably have to bring in someone from the outside to run the company and that could lead to major changes.”
Either way, the board’s decision for new leadership, both at Kate Spade and Tapestry, will play an integral role in strategy moving forward.
“The good news is that the Coach brand is really an important piece of their business, in terms of cash flow and ebita; it’s actually in a very healthy place,” Boruchow said. “It’s not going to be some massive structural turnaround taking place at Tapestry.”