00:00Tapestry recently reported better than expected earnings, driven by outperformance in its coach
00:05brand. Bloomberg's Romain Bostic and Katie Greifeld spoke with coach CEO Todd Kahn about the brand's
00:10recent resurgence, Gen Z shopping trends, and the accessible luxury landscape. We focus very much
00:18on trying to figure out Gen Z. I often say we're an overnight success story six years in the making.
00:24And Stuart and I, many years ago, recognized, among other people at Coach as well, that we were too much
00:33often considered a brand for everyone and hence a brand for no one. And we became extraordinarily
00:39focused on Gen Z. And part of our focus was listening, learning, doing a lot of sometimes what
00:47I call big data and little data. Big data is we're a direct-to-consumer business. We have millions
00:54of customers. We have a lot of data from them. Little data is sometimes going into people's
00:59houses, doing shop-alongs with them. They don't often know what brand, which brand they're speaking
01:05with and listening to them. And we gain real insight from them.
01:10Sure, of course. I mean, have you ran into any issues as of late with regard to being able to
01:14source your leather, whether it's because of tariffs or the cattle shortage we hear about,
01:18or even just the idea that, you know, the people, the expertise in being able to tan leather is the
01:23number of people who can do that these days. It's a lot different than what it was when you guys
01:26were
01:27founded in 1941.
01:27Yeah. So, fortunately, we're a substantial house. We have deep resources. We started as a
01:34manufacturer. So, we still have a manufacturer mindset. We have leather experts in our company.
01:40We source leather from around the world. We work with the best tanneries. Our units are significant.
01:48So, people want to work with us. So, we do get the choice to get what's the best out there.
01:56We have
01:57not seen an issue with our leather suppliers, nor have we seen an issue with our make manufacturers.
02:05We are making coach product with some of the same people we've made for 20 or 30 years. We have
02:10very deep relations. Of course, tariffs are an issue. But one thing about our company that
02:16you need to bear in mind, we see in the next three years, 70 percent of our growth coming from
02:21international. So, when I'm selling internationally, tariffs are no longer in play.
02:28That was coach CEO Todd Kahn speaking with Bloomberg's Katie Greifeld and Romain Bostic.
02:33And Romain joins us now from the coach store on Fifth Avenue, still with a great backdrop of coach
02:38items behind him. Romain, first of all, fantastic interview. I'm looking forward to watching the
02:42whole of it on the close today. It does feel like there's this big anxiety among shoppers,
02:47but coach has been a brand that's been able to overcome that. What did the CEO tell you in terms
02:53of how he pulled it off? Well, I mean, it's funny. When you think about a fashion brand,
02:59you think sort of everything comes from the gut. It's all about just the design. But this is a
03:04company that's very data-driven. And you go back to about 10 years or so ago when Todd Kahn showed
03:08up.
03:09He actually started as a general counsel. He's a lawyer by training. And a few years after that,
03:12there was this idea of who is actually the future shopper. Now, of course, we know it's always going
03:17to be the younger generation, but what did they want? And they made this switch from what they used
03:21to call affordable luxury to expressive luxury. And this was all data-driven. The idea that Gen Z is
03:27spending about 20% more than other generations on non-essential goods. So things like beauty,
03:34handbags, if you will, things you don't necessarily need, but you certainly want. And they really leaned
03:39into that data. And growth has been phenomenal. The most recent quarter, you're talking about 20-plus
03:44percent growth in the Coach brand alone. And they see that being able to sustain itself, not only here
03:49in North America, Danny, but overseas as well, particularly with some of the growth that they're doing
03:53in China. And they're really competing on a large basis on price point. Remember, this is, to a certain
03:59extent, a luxury item, but their price point is kind of in that $200 to kind of $500, $600 range,
04:04which is well
04:05below what you would see if you walk down Fifth Avenue to Louis Vuitton, Gucci, or one of the other
04:10big luxury
04:10retailers here.
04:11So what does that mean as to how they're handling tariffs and increased cost remain if they are seeing any
04:16impact?
04:19Well, we have seen the impact, and you saw that reflected in the most recent earnings report. They've balanced
04:25that out. The hit to margins that they've taken with regards to tariffs, they've made up to a certain degree
04:30by
04:30effectively discounting less. So overall, their price point has stayed the same. But what they call
04:35their AUR, which is effectively the amount of more money that they're making off of each individual
04:40item, that has actually gone up. And that seems to be the balance that Todd Kahn and his team are
04:45really
04:45going for here. The idea that you just hold the price at the top, don't discount much, and then at
04:50some
04:50point that will compensate for the elevated tariffs. We should point out there's been a lot of research out
04:55there right now, Danny, that shows that not only our price is much higher for leather, something like 20%
04:59than where we were just a year ago, but those prices are going to stick. So even if those tariff
05:04rates come down,
05:05the leather council is actually projecting that prices will still end up being 7% to 10% higher for
05:11basic leather
05:12for companies like Coach going forward.
05:14Ramin, how much of this is a success story of Coach and tapestry versus affordable luxury hanging in or even
05:20becoming
05:21more attractive as consumers trade down? Are the capris of the world, for example, still doing as well? A company
05:27which,
05:27of course, we should note that at one point tried to merge with tapestry.
05:32Well, the short answer to that is no. And Todd Kahn said also in the interview, the idea that
05:38effectively what has been happening is Coach now is the market. You know, it basically says that at
05:43that price point and in that sort of accessible luxury range, they are the only ones really growing
05:49that market. Now, you can quibble a little bit with some of the numbers there, but when you look at
05:54some
05:54of their more direct competitors, none of them, and I mean none of them, are growing nearly as fast
05:59as Coach. And in fact, some of them are still in contraction.
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