‘Emotional’ purchases and splurges on fun handbags mitigate sales declines at Kate Spade and Coach

October 29, 2020, 5:51 PM UTC
Erik McGregor—LightRocket/Getty Images

During these dark times, consumers are indulging in a bit of fun, giving brands like Coach and Kate Spade a much needed lift.

At Coach, owned by fashion conglomerate Tapestry, the average price customers paid for handbags in the quarter ended Aug. 28 rose 25%, helping its parent company turn a nice profit despite overall sales declines.

The increase had a lot to do with having less inventory on hand and, by extension, less discounting to clear out unsold merchandise. Indeed, Tapestry executives said they had reduced promotions significantly during the quarter. But it also indicates that shoppers are turning to handbags as a retail pick-me-up.

“Consumers really consider this category a treat for them to bring a bit of joy to their life,” Tapestry CEO Joanne Crevoiserat, the interim chief executive who got the top job earlier this week, tells Fortune. Those words echoed the sentiments of Saks Fifth Avenue president Marc Metrick, who this week compared luxury spending to “comfort food.”

One theory put forth on Twitter by retail analyst Stacey Widlitz, president of SW Retail Advisors, is that with all the extra things people have to carry with them in this COVID era, such as hand sanitizers, a spare mask, and sanitary wipes, “crossbody bags no longer cut it.” A shifting preference for smaller bags in the years before the pandemic had hurt the company because of the lower prices they commanded.

But Todd Kahn, interim CEO of the Coach brand, Tapestry’s largest by far, says it has more to do with Coach’s products simply striking a chord with consumers. “Nothing would make me happier than to have big bags be the blowout opportunity of the season. [But] the results you saw in this quarter were really driven by emotional bags.”

Overall, Coach sales fell 9%, a big improvement over the 53% drop in the previous quarter and helped by more North American stores being open, a jump in online sales, and solid sales in China.

At Kate Spade, a brand Tapestry has struggled for years to turn around, sales were down 21%. But it would have been worse without one product that was a hit: a $348 crossbody pineapple handbag, an item that tapped into consumers’ desire for the fun and whimsy referenced by Crevoiserat.

Tapestry’s third brand, Stuart Weitzman, continued to struggle, with sales down 35% as consumers stayed away from shoes for the office or for formal occasions.

Despite those declines, Tapestry’s shares rose on Thursday and are now up 47% since the pandemic hit in March. The reason: The acceleration program that Crevoiserat helped develop since joining Tapestry as finance chief in 2019 is beginning to pay off.

The pandemic forced Tapestry to move more quickly to strengthen its e-commerce business, which has more than doubled in each of the past two quarters over the year-earlier periods. The company has eliminated some fat in its supply chain and is using more data in deciding what to make and where to sell it.

“We had recognized that our business had been underperforming, particularly in our acquired brands,” Crevoiserat recalls. “All of those things took on a higher sense of urgency as we moved through COVID.”

As for the gradually shrinking sales declines at Coach and Kate Spade, Crevoiserat thinks the environment will continue to give the brands an assist in their bread-and-butter business.

“We see strong consumer intent-to-purchase going forward. Our business bears that out. Consumers are still interested in buying handbags,” she says.