Tapestry, the parent company of Coach, has released their forecast for fiscal year 2024, projecting weak profit and sales. This announcement comes as a result of a decline in demand for luxury handbags in the United States, which has negatively impacted the company’s fourth-quarter results. However, Tapestry is not alone in facing this challenge, as other prominent luxury brands such as Ralph Lauren, Kering, and Canada Goose have also cited difficulties in the North American consumer market.

One of the underlying factors contributing to the decreased demand is the increased cost of living and high inflation in the United States. These economic pressures have placed a strain on the budgets of American consumers, especially in the “accessible luxury” segment, where individuals are more price-sensitive to essential goods. A prime example of this is Coach’s best-selling Tabby handbag, which retails for $450, while a comparable product from Dior sells for a steep $3,800.

CEO Joanne Crevoiserat has acknowledged that lower-income consumers are feeling the strain and becoming more selective in their purchasing decisions. However, Tapestry remains hopeful for a rebound in demand from China, a highly profitable region for the luxury market.

In the most recent quarter, Tapestry’s brands Kate Spade and Stuart Weitzman witnessed declines in revenue of 10% and 13% respectively. Analyst Oliver Chen attributes Kate Spade’s struggles partly to its greater exposure in the North American market. Conversely, Coach saw a 5% growth in sales, benefitting from its lower exposure to the volatile North American market.

To navigate these challenging market conditions, Tapestry plans to concentrate its marketing efforts and inventory on core products like the Tabby handbag during the pivotal holiday season. Prioritizing evergreen or iconic items, the company aims to bolster customer engagement and drive efficiency. CFO Scott Roe emphasizes that this is their strategy for achieving success.

In a significant move last week, Tapestry decided to acquire Capri Holdings, which owns Michael Kors, for a staggering $8.5 billion. This strategic acquisition is aimed at competing with larger European rivals and expanding Tapestry’s market share in the global luxury industry.

Despite these plans, Tapestry’s forecast for fiscal year 2024 falls below estimates. The company predicts adjusted earnings per share of $4.10 to $4.15, while the estimate from Refinitiv IBES stands at $4.24. Furthermore, their net sales forecast falls slightly short of expectations.

Another factor impacting Tapestry’s profitability is the strength of the U.S. dollar, which affects numerous American brands and retailers. This is an ongoing challenge that the company, along with others in the industry, continues to grapple with.

Overall, Tapestry is currently facing headwinds in the luxury market due to weak U.S. demand. Nevertheless, the company remains optimistic about a potential recovery in Chinese demand and the opportunity for growth overseas. By focusing on core products and expanding their global presence through strategic acquisitions, Tapestry aims to navigate these challenges and bolster its position in the luxury industry.

Useful links:
– [Top Luxury Brands in 2021](https://www.businessoffashion.com/articles/intelligence/top-50-global-fashion-schools-2021)
– [China’s Growing Luxury Market](https://www.cnbc.com/2021/06/27/china-will-account-for-50percent-of-worlds-luxury-sales-by-2025-mc-moet-hennessy-ceo-says.html)