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Tapestry Now Sees China as Key Market, Not Factory, for Bags

Tapestry Inc. wants its handbags and boots to conquer Asia.

The house of fashion brands, which owns Coach, Kate Spade and Stuart Weitzman, has taken measures to gain more control over its business in the booming region, where in some cases it didn’t own the local operations that distribute and sell the products. Tapestry has signed purchase agreements to acquire the Stuart Weitzman business in Southern China and Kate Spade’s operations in Singapore, Malaysia and Australia.

“Our number one priority for this upcoming year is China,” Tapestry Chief Executive Officer Victor Luis said in an interview Tuesday. “We’re buying back distribution.”

Mainland China, Hong Kong and Macau accounted for about 14 percent of Tapestry’s $4.49 billion in annual revenue in its fiscal year ended July 1, 2017, prior to the company’s acquisition of Kate Spade. Tapestry’s Coach began acquiring the brand’s retail businesses across Asia, from Macau to South Korea, from its distributors in 2009.

The Coach line is poised to receive “an unprecedented amount of attention and investments” in China, Coach CEO Josh Schulman said on a conference call with analysts Tuesday. The label will significantly hike spending on advertising, and in December, Coach will host its first-ever fashion show in Shanghai.

China’s growing middle class is a key target for upscale retailers. The demand for premium goods is gaining traction as an increasing number of Chinese families cross the income threshold to become affluent.

A few years ago, Coach considered China a hub for making handbags, not selling them. In 2011, about 85 percent of Coach’s accessories were produced in China. Ever since, the company has slowly diversified, moving production to facilities in Southeast Asia and India. Now just 3 to 4 percent of Tapestry’s bags, under the Coach and Kate Spade labels, are made in China, Luis said. That will help protect the company if the Trump administration puts into effect tariffs on $200 million worth of products, including handbags, imported from China.

Tapestry is on the recovery path after re-engineering itself as a portfolio of luxury labels. Its handbags suffered as deep discounting hurt their cachet, so the company has dialed back flash sales in an effort to bolster its brands and is beginning to rebound.

—With assistance from Karen Lin and Iris Zambrowski (Bloomberg Global Data).