Bloomberg Talks
00:04:35 · Kailey Leinz, Joanne Crevoiserat, Romaine Bostick
[00:04:35] S2: I am curious, though, with those particular customers in China, the younger customers, are they coming to Coach because of, I guess, at the expense of some of the European luxury handbag and apparel makers, or are these people... sort of new entrance into this sort of luxury or luxury light space? [00:04:52] S3: Well, we're not relying on customers to trade from another brand, particularly from the top of the market down. These are customers who are mostly entering the category for the first time. And we make sure we protect the value proposition for those customers to be able to, you know, at our value proposition, we appeal to a broad range of consumers that are consumers that the top end of the market can't reach, right? So our value proposition is really important to us, and we're quite thoughtful about how we build product and experiences to ensure that we hit the sweet spot. Todd likes to talk about, Todd Conner, our coach CEO, talks about this $ 200 to $ 500 sweet spot. That sweet spot to deliver an incredible luxury handbag, right? Genuine leather, crafted to last, reflecting new trend. I was at our Dongguan Center in China just a few weeks ago as well, watching our design teams work with real intention around hitting that value equation that our customer responds to. [00:05:52] S0: Is that strategy, and let's just bring this back to the U.S. [00:05:54] S2: Though, particularly with the pricing strategy and obviously going after Gen Z, and I saw your numbers are pretty good, the acquisition levels. [00:06:01] S0: I think for Cotra, likely 40%.
00:06:01 · Romaine Bostick, Kailey Leinz, Joanne Crevoiserat
[00:06:01] S0: I think for Cotra, likely 40%. [00:06:03] S2: But I also saw that you were reducing the number of handbags that were priced below $ 200. What's the decision process behind that? And why, particularly at this time, as you head into a holiday season, we're already seeing a lot of promotions from your competitors? [00:06:17] S3: Well, again, we're delivering incredible value and we're not walking away from the value delivery. And I think what you heard in that statistic of reducing our exposure to promotional units under $ 200 is being exceptional stewards of the brand and being disciplined in how we're driving growth. But we see Coach with an opportunity to be a $ 10 billion brand. And we see the opportunity to continue to grow our business, both in North America, our largest region, as well as around the world. And in order to do that, we have to maintain a healthy brand. delivering incredible value, $ 200 to $ 500, you can still buy product under $ 200 at Coach. There's fragrance, there's footwear, there's a lot of product you can engage with. What we're trying to do is step away from all the promotional activity and exposure. And it's not the promotion the customer's in there for. The customer... What we hear from young customers is they want to know when they spend their dollars that it's worth it. And that value equation, the value proposition is about quality and craftsmanship and style and innovation as well as price. And we bring all those together and we believe that we have one of the most compelling value propositions in the market today.
00:07:29 · Kailey Leinz
[00:07:29] S1: I want to ask you about something that came up a few times in your statement and on the earnings call as well. When you look at your margins and some expansion that you were able to see due to more favorable tariff rates, I ask this knowing we just came off a midterm election when Democrats swept to power in part promising that they want to do something about the president's tariff regime. I don't know if you can necessarily bet or forecast around that as long as President Trump is in the White House, but what would a potential rollback in some of the tariffs actually mean for the margin you could continue to see expand?
00:07:58 · Joanne Crevoiserat, Romaine Bostick
[00:07:58] S3: Well, we can compete and win in any environment. And I think over the last six years, we've proven that again and again. We have been able to work our way through the tariff landscape, understanding how to build, still build compelling product crafted to last, right? We are, we have 85 years of craftsmanship experience, and that's how we bring this compelling product to life. And the tariff landscape has been a headwind for us. And we plan around that. We have the agility in our supply chain to manage through all the different changes. I mean, if you go back to COVID, It's not just about tariffs. It's about, you know, whether we have consistency of supply around the world. So we have a diversified supply chain. We have deep partnerships and deep understanding of how to build product and deliver that craftsmanship that our customers value. So, you know, tariffs have moved around quite a bit over the last few years, and our teams have been agile and being able to move with it. And it's nice to have a little cost relief. We're not counting on it. We're not reliant on it. And our teams, I have complete confidence that our teams will continue to work through headwinds of inflation, higher fuel costs in the environment to continue to deliver really incredible value to the customer. [00:09:12] S0: Joanne, can I ask you about Kate Spade?
00:09:12 · Romaine Bostick, Kailey Leinz, Joanne Crevoiserat
[00:09:12] S0: Joanne, can I ask you about Kate Spade? [00:09:14] S2: I know you've talked a lot about the potential turnaround that could come there, but on the guidance that you just gave, we're still basically talking about a brand that's in decline. Do you have any hope anytime soon that we could see that reversed? [00:09:28] S3: Yeah, we are doing the work at Kate Spade, and we're being disciplined about how we're doing that work. And we know in order to restore brand heat, we have to first restore the health of the business. And so we're making decisions to do that. Our quarter was in line with our expectations, a decline in revenue, but we saw gross margins expand. And that's really... key to restoring that healthy foundation that we can grow from. I'm really encouraged because we hired Jonathan Saunders, our new executive creative director. He started last quarter and I was in, I talked about being in Dongguan. I got to see Stuart Vevers, our coach, creative director, and design team in our product development facility while they were working. It's like watching the magic happen. I was also able to get a sneak peek of some of Jonathan's work, and I'm really excited about what's to. [00:10:12] S0: Come for Keystone. Well, I'm curious about that.
00:10:12 · Romaine Bostick, Kailey Leinz, Joanne Crevoiserat
[00:10:12] S0: Come for Keystone. Well, I'm curious about that. [00:10:14] S2: I saw you guys said that there was something like 500,000 thousand new customer acquisitions for Kate Spade brand specifically, even though sales still down. When we talk about that type of customer acquisition, are you looking for folks that are already in the tapestry ecosystem, meaning coach customers that maybe will become Kate Spade customers? Or are you looking for a completely new entrance into the Kate Spade universe? [00:10:34] S3: Well, there are two different customer segments. Coach has a timeless Gen Z that really resonates with the timeless nature of the offering at Coach. And Kate has what we call the Gen Z Connector, who is a customer who really resonates with the feminine, joyful aspects of the Kate Spade brand. So they're very different segments, but both Gen Z... And what we're interested in at Kate is to build that brand and the customer acquisition back with a younger consumer and one who is there for the brand and not for the discount. And so we're being very disciplined about how we step through the phases of this. We have a streamlining phase where we're stepping away from discounts. We're closing unproductive stores. We're really resetting it to a healthier foundation. [00:11:21] S0: Mm-hmm.