18 BARRON’S September 16, 2019
Founder Kate Spade (who died last year)
soldamajoritystakeinhercompanyin
andlatersteppedawayfromitsdesignstu-
dio,butthebrandhascontinuedtoresonate
underotherdesigners.StuartWeitzman,the
smallest of the three brands, gave Coach
footwearexpertisethatithadbeenlacking,
says Gabriella Santaniello, a retail analyst
and consultant with ALine Partners.
But in the company’s most recent quar-
ter, it became clear that the holding-com-
panystrategyhaslimitations—particularlyif
one of the brands isn’t selling well. In this
case, the problem child has been Kate
Spade. Same-store sales fell 6% because of
weakness in North America, and the com-
pany expects a decline in the high teens in
thecurrentquarter.“KateSpadeisamajor
problem,” Jefferies analyst Randal Konik
wrote recently.
InSantaniello’sview,oneproblemisthat
Tapestry appears to be “Coach-ifying” the
brand—raising the level of craftsmanship
butremovingthefun.“They’retakingaway
from the DNA of Kate Spade, which was
verycolorfulandwhimsicalandengaging,”
she said.
Zeitlin has heardthecriticism.“IfIcould
get paid a dollar for every time somebody
tells me that the Kate Spade brand is bro-
ken, our stock would be $50,” he says.
The comeback plan involves bringing
back some of that whimsy. “In our initial
moves, we had frankly put less emphasis
on that,” he acknowledges. Tapestry will
also continue its aggressive overseas ex-
pansion, bringing new Kate Spade and
Stuart Weitzman stores to China and other
Asian countries, in particular. Kate Spade
added 52 international stores last year, a
56% increase to itssquare footage outside
the U.S. Coach’s success in China gives
Kate Spade a head start.
Several analysts have backed away
from Tapestry amid Kate Spade’s stum-
bles. “Should we throw in the towel and
downgrade the stock?” asked Bernstein
analyst Jamie Merriman in a client note,
before deciding against it. Coach itself is
definitely not broken, she wrote, and ap-
pears to be taking market share.
Merriman thinks the stock can get to
$31, implying a 25% return. A bet now on
Tapestry’s turnaround could turn out to be
a bargain.
“They’retakingawayfrom
theDNAofKateSpade,
whichwasverycolorfuland
whimsicalandengaging.”
Retailanalyst
GabriellaSantaniello
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