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Tapestry targets Chinese consumer for future growth

Tapestry Inc. is looking to drive growth across its three brands — Coach, Kate Spade and Stuart Weitzman — by emphasizing the Chinese consumer, the company's executives said in an analyst call Aug. 14.

"Across all of our brands, we are focused on maximizing the opportunities with Chinese consumers both locally and globally," Tapestry CEO Victor Luis, said on a call after releasing fiscal fourth-quarter earnings that beat analyst expectations.

Coach's China operations will receive "an unprecedented amount of attention and investments" in the coming year, Coach brand CEO and President Joshua Schulman said on the call. Not only will the focus on Chinese consumers boost sales in the country, it will also help drive growth for the "global-traveling Chinese consumer" who shops in other geographic markets, he added.

"That is going to be a very big focus for us," Schulman said.

Coach is gearing up to stage its first fashion show in Shanghai. The show, slated for December, is part of Coach's "very significant investment in China marketing," Schulman said. The marketing investment plan also includes two Chinese celebrities, actress Guan Xiaotong and Timmy Xu, who will appear in the brand's fall campaign, he added.

For its other brands, Tapestry is looking to take more control over the distribution and selling of products in the region. Tapestry has signed purchase agreements for the Stuart Weitzman business in southern China, as well as Kate Spade's Singapore, Malaysia and Australia operations.

Tapestry did not break out international sales for the fourth quarter but said Coach had 585 international stores as of June 30, compared to 543 as of July 1, 2017. The brand's store count in North America decreased to 402 from 419 over the same period.

While Tapestry looks to China as a key consumer market, the country is no longer a significant production site for its handbags. This should limit Tapestry's supply chain exposure to potential U.S. tariffs on handbags and accessories, Luis said during the call.

"Naturally, we're monitoring the situation closely," he said. "But it is important to note that given the diversity of our manufacturing base and the steps we've made to migrate Kate Spade on to the Tapestry supply chain, less than 5% of handbags across Tapestry are produced in China."