Commentary

With Kate Spade Faltering, Tapestry Gives CEO Reins To Chairman Zeitlin

Coach, Stuart Weitzman and Kate Spade owner Tapestry Inc. yesterday sent CEO Victor Luis packing after five years at the helm and named its board chairman, Jide Zeitlin, to take his place.

“Luis is credited with successfully expanding the Coach brand overseas, reviving the Coach brand by re-investing in product quality and signing off on the splashy (though expensive) acquisitions of accessories maker Kate Spade and high-end footwear player Stuart Weitzman. But with Tapestry’s stock down about 60% over the past year amid struggles turning around Kate Spade, it was likely time for a change in leadership,” writes  Brian Sozzi for Yahoo Finance.

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“We have a ton of confidence in Tapestry's brands and the strategy, but we have had a few slips in strategic intent and operational delivery,” Zeitlin, 55, tells Sozzi. “We still firmly believe the multi-brand model is appropriate,” Zeitlin maintains.

Kate Spade, which it acquired  for $2.4 billion in May 2017 when it was still known as Coach, is Tapestry’s big problem. 

“Sales at Kate Spade stores open at least a year fell 6% in the three months that ended June 29, and the brand’s margins contracted on higher discounting. That prompted Tapestry to lower earnings guidance for the year, which sent its stock plunging 22% in a single day. The shares have fallen by more than half during the past year,” Suzanne Kapner reports  for The Wall Street Journal.

“Tapestry’s other two brands, Coach and the much smaller Stuart Weitzman, have performed better. Sales at Coach stores open at least a year rose 2% in the latest quarter,” she adds.

“Like so many other fashion brands that got their start with the older generations, Kate Spade may be missing a meaningful connection with the next generation of millennials. No matter what consumers say in surveys and focus groups, the most important consumer feedback comes from sales and in that Kate Spade is losing the race, at least in North America,” Pamela N. Danziger wrote  for Forbes last month after Tapestry reported its fourth quarter and year-end earnings.

“Challenging too in its positioning as a ‘modern luxury accessories and lifestyle brand’ is its exposure in the retail outlet space. Some 50%, about 100 out of its 213 North America stores, are outlets. Much talk in the earnings call was devoted to getting the merchandise mix right in the outlet stores. But luxury brands, modern or otherwise, are not built on discounting,” Danziger pointed out.

Creative director Nicola Glass’ “vision for the brand, as expressed in the company’s latest investor presentation, is described as ‘feminine, fun and fashionable,’” Danziger adds.

“Zeitlin, who will remain board chairman, said he wasn’t planning any management changes at Kate Spade or elsewhere in the company. He said the board plans to begin a search for a permanent CEO at some point in the future. The company also said board member Susan Kropf, a former Avon executive, has been named lead independent director,” the WSJ’s Kapner reports.

“Zeitlin, 55, becomes one of about a half-dozen black CEOs at S&P 500 companies. He is the son of a Nigerian domestic worker who was adopted by an American family and became an executive at Goldman Sachs after earning an MBA from Harvard,” writeBloomberg’s Jordyn Holman and Jonathan Roeder.

“Tapestry, which also owns Coach and Stuart Weitzman, remains focused on its multibrand strategy, Zeitlin said. He added that the company’s plan is sound, but ‘there have been some hiccups’ as the company implements it. He said his experience outside of fashion gives him a unique perspective, in terms of ‘knowing the business but still being able to bring a fresh set of eyes to a lot of the discussions,’” Holman and Roeder continue.

Meanwhile, The New York Times fashion director Vanessa Friedman is reportedly writing a biography of Kate Spade, who founded the company with her husband-to-be, Andy, in 1993, and sold it in 2006.

“But we’re told that  --  a little more than a year after Spade’s suicide --  still-raw nerves and concern for her family are making the project a challenge,” Oli Coleman writes for the New York Post’s “Page Six.”

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