Coach Owner Tapestry Chooses Hainan As HQ For China Travel Retail

Tapestry Group, which owns the Coach, Kate Spade and Stuart Weitzman brands, is all set to place the headquarters for its China travel retail business in Hainan, the free trade port where duty-free sales have been soaring during the pandemic.

New York-listed Tapestry formally signed a strategic cooperation agreement with Hainan International Economic Development Bureau and a bonded zone committee in Haikou, the capital of the island province, on Tuesday.

In a statement, the president of Tapestry Asia Pacific and CEO of Coach China, Yann Bozec, said: “The Hainan market continues to see vigorous momentum. The launch of our China travel retail headquarters here is an important milestone marking the beginning of our travel retail business in China.” Bozec added that he expected to enter “a new chapter of rapid development” by advancing relationships with more retail partners on the island, the number of which has steadily increased.

Hainan’s provincial government is making great efforts to attract luxury houses to settle on the island. As well as the lure of free port status, it is actively helping brand owners to coordinate aspects such as customs and taxation.

The investment arm, Hainan Provincial Bureau of International Economic Development (Hainan IEDB), is helping groups like Tapestry not just establish themselves in Haikou, but also accelerate their business development, explore digital transformation options, and expand omnichannel services. At its new HQ, Tapestry will begin building up a local operation team with the aim of coordinating the group’s travel retail business across the whole country.

Hainan wants to be the center of travel retail and free trade in China. Last year in May, IEDB held the inaugural China International Consumer Products Expo in Haikou, which attracted over 1,500 domestic and foreign companies from around 70 countries. Exhibitors included a host of luxury brands including some big names like Burberry, De Beers, L’Oréal, Shiseido Swarovski, Swatch and Tapestry. The event shifted the focus away from Singapore where the duty-free industry usually gathers in the same month for its leading regional show, TFWA Asia Pacific, which was replaced with an online forum last year due to the pandemic.

A tricky time

While Hainan has buoyed travel retail in very hard times, it is now suffering an unforeseen setback. Due to the high Covid case numbers in China and subsequent lockdowns, sales contracted in March after surging by 33% to $2 billion in January and February. The contraction could continue into April given the scale of the outbreak.

Tapestry has already felt the pressure of China’s current economic unpredictability. The company’s fiscal 2022 second quarter results (ending December 2021) showed low-single digit revenue gains in Greater China after booming numbers in previous periods, admittedly against sometimes soft comparisons.

Overall, Tapestry achieved revenue of $2.14 billion during Q2 FY2022, up 27%, of which $1.5 billion came from Coach, $500 million from Kate Spade, and $116 million from shoemaker Stuart Weitzman. The weight of Greater China is now 19% up from 15% in FY2019.

With travel retail sales still slumbering in most of the rest of Asia Pacific due to a slow return of cross-border travel, the focus on China from a base in Hainan makes sense. Both Coach and Stuart Weitzman, which are over-indexed in Greater China at 22% and 38% respectively are likely expansion targets for the travel retail channel.

On a wider all-channel perspective, the move may also be beneficial. There are worries that some fashion houses with too much inventory will not cope well in western markets as economic headwinds, particularly inflation, start to negatively affect consumer sentiment.

Earlier this month, Wells Fargo
WFC
downgraded fashion stocks like Ralph Lauren and VF Corp, but was optimistic on the outlook for Tapestry and Capri Holdings (the owner of Michael Kors) thanks to their focus on the resilient handbag category. However, Tapestry’s stock suffered the wider fallout in the sector and is down by almost 7% over the past month while Capri Holdings fell by 3%.