BREAKINGVIEWS-Tapestry’s boom is European luxury’s wakeup call

By Yawen Chen

LONDON, June 4 (Reuters Breakingviews) - The luxury world is in a slump, though not everyone is feeling the pain. Shares of European giants like LVMH LVMH.PA and Kering PRTP.PA have plunged by around 40% since last summer amid a general sales slowdown, even as investors have bid up New York-based Tapestry’s TPR.N stock by 81%. Big European rivals may dismiss the owner of on-trend label Coach, whose handbags cost hundreds rather than thousands of dollars. Yet its pricing and branding strategy exposes a dangerous truth that could hurt the old guard.

Coach is having a moment. Its sales, which make up 80% of $16 billion Tapestry’s total, have grown at a double-digit percentage rate even as French and Italian labels’ revenue has shrunk. It appeals to so-called aspirational consumers, who want luxury at a lower price. Its signature Tabby shoulder bag retails for 375 pounds ($508) in Coach’s UK online shop, whereas the cheapest item in the women’s handbag section of Louis Vuitton’s – a much smaller accessories pouch – is 550 pounds, spiralling all the way to 4,850 pounds.

With European brands aggressively raising prices during the pandemic, the share of products retailing for under 400 euros ($452) is decreasing for all except Prada, according to data intelligence outfit Luxurynsight. As Coach CEO Todd Kahn has put it, traditional luxury companies used to sell at double Coach’s prices 20 years ago, but now the gap has widened to a factor of 10.

The Europeans think of themselves as in a different league, an image that’s buttressed by high-teens 2026 price-earnings multiples for Kering and LVMH, compared with Tapestry’s 14. They also justify higher prices by boasting about the prestige and craftsmanship associated with products that are made in the continent. Coach’s supply chains, by contrast, span Asian countries like Vietnam.

Yet these differences are blurring. Last year a Milan court targeted subsidiaries at major brands, like LVMH’s Christian Dior and Giorgio Armani, for what the prosecutor saw as abuses within supply chains. The Italian court documents, as reported by Reuters, showed that contractors charged Dior as little as 53 euros for a handbag that would retail for thousands. The French label said it has cut ties with the suppliers in question. Meanwhile Coach fans argue that there is little visible quality difference between the U.S. group’s products and more expensive European ones. Tapestry is not alone. American peer Ralph Lauren, known for its polo shirts, has also outperformed while appealing mostly to aspiring consumers.

The rise of the aspirational brands is less of a problem for super-luxury players, like Hermès HRMS.PA, whose extreme exclusivity supports a much higher price point. Even so, the Birkin bag maker’s sales growth has also slowed. And the rest of the industry, including labels inside Kering and LVMH, faces a bigger problem. Setting prices lower and focusing more on online sales might entice some Coach customers, but might also be seen as diluting their own brands. Either way, they don’t have the luxury of doing nothing.

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