THINK TankAugust 27, 2020

THINK Tank: Does Luxury Still Need Brick-and-Mortar?

Tapestry, the owner of beloved brands such as Coach, Kate Spade, and Stuart Weitzman, announced on an earnings call earlier this month that the company saw its margins grow by three points during its fiscal fourth quarter. 

 

Tapestry’s Interim CEO Joanne Crevoiserat told analysts that online sales are carrying higher margins than in-store sales and that the company is in the process of “reevaluating the role of its stores.”

 

Tapestry says it is planning for store closures but has not yet revealed how many doors it will shut.  

 

Meanwhile, Coach’s interim brand chief Todd Kahn, told analysts that stores are “commercial ventures and not marketing experiences.”

Q: Is Tapestry’s decision to reevaluate brick-and-mortar the right move for luxury? Do you agree with Kahn when he says stores, particularly for luxury brands, shouldn’t be thought of as marketing experiences?

 

Ricardo Belmar, sr. dir of global enterprise marketing at Infovista
Brandon Rael, retail and consumer strategist

 

Brandon Rael:
I think overall, the luxury segment and industry branch, in particular, are not immune to the challenges that the middle of the retail industry has been facing for years. COVID-19 has impacted the role and the purpose of the store and what will be our new normal. Before COVID-19, the store was the best form of media and customer engagement, along with digital, of course. But, right now, Tapestry brands are challenged to rationalize its store footprints, reduce operating costs, and close improper locations. And the story is still so critical. So you have to invest in their top-performing stores as physical retail is still relevant, even during and post-pandemic.

 

Brandon Rael:
I will argue also, with the emergence of AI and virtual reality, the luxury segment can leverage these technologies and reach more consumers than they had before with mobile apps. So there are those close-knit dependencies on a physical store to drive sales and engagement. So that could be an interim and a short term, perhaps a longterm, move of a hybrid retail model where the mobile technology, such AI and virtual reality, along with the in-store experiences, can help Tapestry make up lost sales from the pandemic and onward.

 

Ricardo Belmar:
I find it interesting that [Kahn] made that comment. I don’t agree with that statement. Even particularly for Tapestry brands specifically, I don’t really agree that they should strictly view those stores as a commercial operation. To me, that implies that they just see it as a cost center and not something that brings value to their customers. And if that’s the case, then that probably says a lot about how their stores have been doing pre-COVID compared with now. But at the same time, I do think they’re right. Their CEO is right to say they’re going to reevaluate the role of its stores. But that can mean a lot of different things. And Tapestry’s a brand of brands, and they have wholesale relationships with other retailers so their products are not just available in their own stores.

 

Ricardo Belmar:
And I think they have to evaluate the mix. They need to know how much they are selling from their own branded stores, how much is coming through those wholesale relationships, how much is coming through e-commerce. And they need to seek the right balance that’s going to make sense for their business. Now, does that mean that they have too many stores, for example? It’s possible. It’s possible that they don’t need all of the stores that they have. I would suggest that it probably has more to do with the location of those stores. Are they in the right locations? And maybe we’ll see that they will close some of those doors because they’re not in either locations that are bringing them a lot of sales. Hopefully, they’ll compare those store sales with the digital sales they’re getting from e-commerce and those adjacent zip codes to see how much lift they’re getting from the physical presence. And if it’s not there and it doesn’t correlate, then maybe that’s a store they don’t need. I certainly can see there are ways they can evaluate this.

 

Ricardo Belmar:
At least I would hope that what Todd Kahn’s comment really had to do with is to say that they need to think about what the stores are for and what they’re doing for them. If their stores are just there to hold product and they’re just sitting back waiting for sales run, then maybe they don’t need that kind of a store. If their store is there to create a brand relationship with their customers and become, as Doug Steven says, more of a media type location or a stores theater where people are there for an experience that makes them aspire towards owning these products, then the store starts to make more sense. And I think that’s true in general with all luxury brands.

 

This conversation first appeared on the Aug 24 episode of the Retail Rundown.