© Stocksak. People pass a Coach luxury fashion store in a Beijing shopping district, China, October 19, 2022. REUTERS/Thomas Peter
By Casey Hall
SHANGHAI (Stocksak). Baoji, a city in northwest China that has a population of 3,000,000, is not what most people think of as a luxury goods market. It will however be home to an American store in the near future. Coach .
According to Yann Bozec (Asia Pacific president), the store is one among 30 in China that Coach parent Tapestry Inc (NYSE:) Inc plans to open in the next 12 month.
Tapestry’s plans to expand in China is unusual. It’s not because of its willingness to tap lower-tier Chinese cities that most Western competitors are afraid to enter, nor for its timing – it comes as it does amid a severe slump in luxury sales in China. It also follows approximately 60 Tapestry stores openings in China over two years.
Analysts believe it’s a business strategy that allows Tapestry to capitalize on its position in China as a purveyor and distributor of “accessible luxury” at an age when many luxury labels are more expensive and Chinese consumers are more cost-conscious.
China’s largest metropolises, such as Beijing and Shanghai, are home to brands like Gucci, Louis Vuitton, and Burberry. Second-tier cities such as Wuhan and Xi’an are also home to these brands.
However, cities at lower tiers – as determined by metrics like economic output and consumer behavior – are shunned. Many brands view them as lacking the luxury malls that they desire.
Tapestry’s prices can be lower than those of Louis Vuitton bags or Gucci dresses, which can fetch thousands of dollars. Tapestry sells most bags for less than $1,000, while Kate Spade’s dresses are priced at several hundred dollars.
Tapestry will make its second foray into a fourth tier city with Baoji. It opened a Coach store in Daqing two years ago. This northeast city is known as the “oil capital” of China. Tapestry will also be looking at other tier-four locations as potential candidates for the 30 new stores in this financial year.
“A lot of our customers are from tier-3 and tier-4 cities, so we believe there’s a cluster there that can scale us. Bozec stated that while we don’t want to be exclusive or select, we want to be near our customers.
BOOM, THEN SLUMP
China’s closure of its borders during the pandemic prevented luxury spending from returning home. The domestic market doubled in two years to be worth 471 billion yuan ($65 billion) in annual revenue in 2021, according to Bain & Co data.
Savills’ research also showed that 55% if the world’s luxury stores were opened in China last year.
Luxury sales in China are currently in decline, with China’s zero-COVID policy and frequent locks affecting consumer sentiment. The slowing global economy and regulatory crackdowns on certain sectors that have contributed to youth unemployment are also contributing to the country’s current economic woes.
Tapestry has not been spared. China sales fell 32% in the quarter ending July 2 compared to the previous year. China sales typically account for about a fifth its overall sales.
Bozec stated that while we know that COVID can make things unpredictable, however, our customer research and economic research are incredibly optimistic about China’s long-term growth potential.
Tapestry declined to comment on China’s investment figures. China is a major growth market Tapestry wants to increase global revenue to $8Billion in fiscal 2025, compared to $6.7B in the year just finished.
CEMENTING A LOAD
Tapestry’s closest competitor, Ralph Lauren (NYSE) said it will continue with its 2018 plans to have 150 stores in Greater China by next April. This is an increase from the 135 stores today. The focus will be on tier-one cities.
However, luxury brands have been quieter than in the past two years about opening new stores for China.
“Generally, the lockdowns, falling consumer sentiment, have encouraged retailers, said James Macdonald from Savills Research China.
Stocksak’s requests for comment from Tory Burch or Michael Kors on their plans to go to China were not answered by either Tory Burch nor Tory Burch, which are both competitors in the “accessible luxurious” segment.
Tapestry plans to expand its product offerings in China. For example, it will add handbags to its portfolio for Stuart Weitzman’s third brand.
Bozec stated that another change will be made to reflect Chinese consumer preferences. Coach stores will now have “livestreaming studios” to allow customers to share their shopping experience with social media followers.
Analysts view Tapestry’s search for more stores as a way to strengthen its brand penetration in China.
The company operates 360 stores in 80 cities across China. Capri Holdings, Michael Kors’ owner (NYSE:), had 288 stores at the end of 2020. Tory Burch lists the following 68 locations in mainland China on their website:
Euromonitor data shows that Coach’s luxury market share is more than twice that of Michael Kors in China and more than three times that of Ralph Lauren, Tory Burch and Ralph Lauren.
Oliver Chen, an analyst at Cowen, stated that Tapestry can benefit by price increases up to 60% for luxury brands. This makes Coach seem more value-oriented.
He said that Coach’s “footprint” is still not saturated in relation to the opportunity.