Tapestry, Inc. is laying off 2,100 part-time store associates across its Coach, Kate Spade and Stuart Weitzman brands amid a major cost-cutting effort to stay financially above water during the COVID-19 pandemic.
The luxury brand house, which has been paying its workers through store closures, also may furlough most of its North American assistant managers and store associates if the company can’t reopen its stores by May 30.
Laid-off employees will receive a one-time $1,000 payment. Further corporate staff reductions and other changes are anticipated in the coming months to “create an agile operating model” designed to result in a “streamlined organization,” the company said.
The cost reductions are affecting management as well—North American corporate employees will see their pay reduced by 5 percent to 20 percent depending on salary level with similar reductions in other parts of the world. Jide Zeitlin, chairman and CEO of Tapestry, Inc., will take a 50 percent salary reduction over the next 12 months, while the Board of Directors will see cash compensation reduced 50 percent.
Merit salary increases for fiscal 2021 have been eliminated and fiscal 2020 bonuses have been cancelled.
“We continue to pay our retail associates, despite store closures,” Zeitlin said. “We have heightened safety precautions in our distribution centers and are maintaining remote working for our corporate employees in numerous global offices. We are supporting our local communities and those on the front lines impacted by the pandemic through our respective brand foundations and philanthropic initiatives. With the passage of time, we are facing increasing pressure on the financial performance of the business, requiring us to make difficult decisions to ensure that Tapestry and its brands continue to thrive well into the future.”
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Despite the turmoil facing business in the West, some parts of the world are getting back to normal. Tapestry confirmed that all stores in Mainland China have reopened after the coronavirus outbreak forced stores shut in the beginning of the year.
The retailer further aims to strengthen its balance sheet by reflowing late spring and early summer product introductions and cancelling orders for late summer and early fall 2020. The company will delay or cancel new store openings, instead prioritizing digital investments by ensuring that e-commerce platforms and distribution centers remain operational across all major regions.
Additional cost-cutting measures include eliminating “non-essential” operating costs including marketing expenses, fixed costs such as rent and external third-party services.
The company already took steps to preserve liquidity in March, drawing down $700 million from its $900 million revolving credit facility to add to its cash balances, suspending stock buybacks and quarterly cash dividends.
The COVID-19 outbreak has thrown a wrench in the start of Tapestry’s multi-year growth agenda, which had been established after Zeitlin replaced former CEO Victor Luis in the role in September. Zeitlin committed to staying on as CEO for three more years last month, and also will assume direct oversight of the Coach brand upon CEO Josh Schulman’s departure.
Upon closing all stores as the outbreak spread globally, credit agency Fitch Ratings downgraded Tapestry to a “junk” rating—meaning a speculative-grade investment—in early April.
But prior to the pandemic, Tapestry saw signs of improvement led by the Coach brand. When the luxury house reported second-quarter results in February, sales at Coach rose 2 percent to $1.27 billion, while comparable store sales also rose 2 percent. Sister brands Kate Spade and Stuart Weitzman still have a long way to go to become successful cogs in Tapestry’s future plans—Kate Spade sales only rose 0.5 percent while its global comparable sales fell 4 percent, and Stuart Weitzman saw sales dip 6.5 percent.