If you've ever been to a Coach store, you know the brand is upscale. So, too, are Kate Spade and Stuart Weitzman, which are the other brands that Tapestry (TPR +0.60%) owns. The company is dedicated to the high end of the market. And that's why the decision to start selling Coach bags on Amazon (AMZN +3.83%) sounds so surprising.
But is it?
Tapestry is becoming a high-end giant
Coach is a storied brand with a great history and name recognition. It's the foundation of Tapestry's business, making up roughly 75% of the company's sales. The retailer's other two nameplates, Kate Spade and Stuart Weitzman, accounted for the rest of the top line.
Image source: Getty Images.
But Tapestry isn't happy with where it is and wants to get even bigger. To that end, the company recently agreed to buy peer Capri Holdings (CPRI 1.50%), which owns the Versace, Jimmy Choo, and Michael Kors nameplates. The cost of this transaction, which is all cash, is $8.5 billion.
Even after this deal, however, Coach will remain the most important brand in the portfolio. Michael Kors is Capri's largest nameplate, with sales of $879 million in the fiscal second quarter of 2024. By comparison, the Coach business produced sales of $1.16 billion in the comparable quarter, or nearly 33% more than Michael Kors.
It's also worth highlighting that, of the three brands Tapestry owns, only Coach was able to increase sales year over year in the fiscal first quarter of 2024. All three of the brands owned by Capri experienced sales declines in the comparable quarter. The important takeaway is that Coach is the big winner for Tapestry right now.
Is Tapestry diminishing the Coach brand?
Which is why it might seem odd that Tapestry began selling Coach bags on Amazon in September. That is decidedly different from the high-end experience that the company is trying to create in its stores. In fact, it would seem like a material step down for a luxury retailer to start selling anything on a platform like Amazon.
Selling through an online version of the Coach store makes sense, but through another company's online store not so much. That's particularly true since one of Amazon's strengths is offering a large variety of low-cost products, which probably includes Coach knockoffs.
NYSE: TPR
Key Data Points
Tapestry is really attempting to do something that it hasn't necessarily had to do before. Coach has a storied history, for sure, but younger generations of shoppers don't shop the same way that Coach's historical customer base shopped.
The company was very clear during its earnings conference call on what it was attempting to do, noting that Amazon is often an important step in a consumer's discovery process. And more to the point, that's particularly true for younger shoppers.
If the brand isn't there when a potential customer starts looking for a bag, it may never have the chance to turn that potential customer into an actual customer.
Yes, there's a risk that the Coach brand's image is diminished by selling on Amazon. But the upside potential of reaching the next generation of shoppers where they're shopping offers huge potential.
It seems unlikely that Tapestry will end up selling everything Coach offers through this channel, and it might even end up creating exclusive products for Amazon, as it does for its own outlet stores. So investors probably shouldn't get too worried about the experiment. Even if the Amazon effort fails, the harm is likely to be minimal.
NYSE: CPRI
Key Data Points
However, if selling Coach bags on Amazon is a success, the upside could be huge. Drawing new customers, potentially an entire generation of new customers, into the brand would expand the market for Coach.
And Tapestry could also start selling other brands on the platform as well, perhaps breathing new life into brands that aren't resonating as well with younger consumers. Add in the Capri Holdings acquisition, and there's notable potential to improve the future prospects of this high-end retailer.
Watch the updates on Amazon
Selling Coach through Amazon is a test, and it's probably only going to be a small part of the overall business even if it is successful.
That said, it's worth monitoring over the near term. Mercurial consumers are a big factor for fashion-oriented brands, and trying to be where customers are shopping is an interesting effort for Tapestry, even if it seems out of step with the history of the Coach brand.
A win here could lead to more interesting outside-the-box efforts at Tapestry as it looks to step up its game in the luxury space.
