Tapestry plans to use Coach playbook to turn around Michael Kors

Coach owner Tapestry Inc. needs to turn around the struggling Michael Kors brand to get the most out of its $8.5 billion deal for the line’s parent company, Capri Holdings Ltd. 

Michael Kors, which generates the biggest chunk of Capri’s revenue, has reported steeper revenue declines than some higher-end peers in recent quarters as inflation bites its more mass-market US shoppers and even aspirational consumers start to pull back after a post-pandemic handbag spending spree. 

But Tapestry executives say they see an opportunity to take a page from the playbook they used to turn around their Coach brand as well as Kate Spade.

The Michael Kors “brand is healthy and it has resonance with a relatively younger and more diverse consumer base,” Tapestry Chief Executive Officer Joanne Crevoiserat said in an interview. 

Tapestry will focus on selling more Michael Kors products directly to consumers and continue to decrease its reliance on department stores, she said. Those outlets have been a weak point for sales, particularly in the past couple of quarters. Tapestry generates around 10% of its revenue via department stores, while Capri makes about one-third of sales through the wholesale channel. 

And just as Tapestry did with Coach and its other brands, executives plan to significantly increase their marketing investments to showcase Michael Kors and appeal to more consumers. 

In the past several years, Tapestry has more than doubled its marketing investments while also increasing profitability, Crevoiserat added. 

Tapestry expects Capri to generate low-single-digit percentage revenue growth during the next three years, Chief Financial Officer Scott Roe told analysts on a call to provide details on the acquisition. This year, Capri’s revenue is likely to fall. Over the longer term, Tapestry sees Capri’s sales growing in the mid-single digits, Roe added.

Tapestry has “plenty of experience of reviving problem brands from its turnaround of Coach, which had become ubiquitous and sullied through constant discounting and promotions,” GlobalData analyst Neil Saunders wrote in a research note. 

“While the same thinking and playbook can be applied to Michael Kors, a turnaround will be far more complex and intricate,” he added.