Oh noooo! Are we going there again? No, I’m not going back to my years of ranting about Eddie Lampert, the brilliant financier who acquired Kmart and Sears in the early 2000s, declaring he was going to return those two iconic brands (failing at the time) to their once glorious positions in retail, only learning quickly that was not doable. He then pivoted and brilliantly managed them down and out over a period of almost two decades. And due to expert financial engineering, he was able to pocket a lot of money … maybe billions? Who cared about Sears’ and Kmart’s fate? Well, I for one did.
Tapestry and its only two players in the luxury space, Versace, and Jimmy Choo, have an almost insurmountable battle for a respectable share of market. And that’s assuming they can find a way to leap forward. They are just too small, niche brands. Scaling to the level of Dior or Gucci is inconceivable.
The point I’m trying to make is that I would in no way assess Tapestry’s CEO (Joanne Crevoiserat) in comparison to Lampert. Except as a former CFO before her ascension to the top job, she likely defaults occasionally to her financial expertise. So that’s a Lampert “echo.” Perhaps her financial background is more focused on the numbers: the potential scale and cost-saving synergies of a combined Tapestry/Capri entity, to say nothing of the combo becoming a near $12 billion revenue producer. In one financial deal, they think they are a major competitor in the luxury sector, just behind the mammoth LVMH brands and Kering.
Whoa!! Right out of the gate, let’s get one major misunderstanding straight: Coach and Michael Kors are not true luxury brands, and certainly not in the class of the LVMH, Kering or other truly defined iconic luxury brands. In fact, in my opinion, these two brands don’t even rise to the level of luxury-elite. Lampert’s echo is that since his mind defaults to all things financial, he had no idea about how to return Sears and Kmart back to their glory days.
And while I believe Crevoiserat likely understands what defines true luxury, I would question how she classifies Coach and Michael Kors, both of which will comprise the majority share of revenues in the new Tapestry (Coach at 74 percent), and in Capri, (Michael Kors at 69 percent). In my opinion, these two brands lost their luxury positioning years ago, both driving their brands into ubiquity with roughly 70 percent of their revenues coming from outlet stores at one point.
Slivers of Luxury
To add some competitive context, the new Tapestry does have two players in the luxury space, Versace, and Jimmy Choo. However, they would have an almost insurmountable battle for a respectable share of market. And that’s assuming they can find a way to leap forward. They are just too small, niche brands. Scaling to the level of Dior or Gucci is almost inconceivable.
Versace at a bit over $1 billion in annual sales and Jimmy Choo at $633,000, these revenues pale in comparison to industry leader LVMH’s overall revenues of $84.7 billion ($61.2 billion excluding the wines and spirits and selective retailing segments) and Kering’s $21.7 billion, as of their latest fiscal year ended December 31, 2022, according to Marie Driscoll of Coresight Research. And based on Coresight’s estimates of the 2022 market size for global personal luxury goods, LVMH’s market share (again excluding its wines and spirits and selective retailing segments) comes in at approximately 16 percent while Kering’s is 6 percent. The newly merged Tapestry-Capri entity is 3 percent.
However, if we understand that Coresight’s reported 3 percent now includes Coach and Michael Kors, and we also agree that those are not true luxury brands, then the 3 percent would fall to less than 1 percent.
C’est Fini, Maybe
Maybe this all sounds harsh as an assessment of the Tapestry deal. On a more positive note, the collective power of the new Tapestry brands may very well reposition and energize them in differentiated spaces. But I am not optimistic. We’ve been to this dance before and although Coach and Michael Kors may pave the path for growth, being taken seriously as luxury players is not in the cards.