Tariffs Hit Tapestry: $160M FY26 Drag, SKU Cuts and Portfolio Focus
Bottom Line Impact
Without decisive action, tariffs risk a 200-300 bps EBIT margin compression in FY26; a focused portfolio, rapid sourcing diversification, and targeted pricing on hero SKUs can largely neutralize the $160M headwind while strengthening Coach's market position and stabilizing Kate Spade's brand equity.
Key Facts
4- Tapestry shares fell 14% on profit guidance below expectations following tariff commentary
- Tariffs are expected to cost approximately $160M in fiscal 2026, materially pressuring profitability
- Management plans to cut the number of handbag styles offered to offset import duties and reduce complexity
- Tapestry intends to offload Stuart Weitzman to free resources for Coach growth and a Kate Spade turnaround
Time Horizons
Key Roles Affected
Executive Summary
Tapestry signaled a weaker profit outlook as Trump-era tariff plans create a ~$160M headwind in FY26, triggering a 14% share drop and a decision to reduce handbag styles. Offloading Stuart Weitzman realigns management and capital toward scaling Coach and fixing Kate Spade; decisive sourcing shifts and targeted pricing are now critical to defend margins and share in accessible luxury.
Actionable Insights
Immediate Actions (Next 30-90 days)
Announce a 12-month tariff mitigation plan targeting a 200-300 bps margin defense via a 20-30 ppt sourcing shift ex-China and a 10-15% SKU reduction across handbags
Rationale: Clear targets and timeline stabilize stakeholders and sharpen execution focus on the two levers with the highest near-term economic impact
Role affected:CEO
Urgency level:immediate
Issue RFPs to shift 25% of handbag units from China to Vietnam/India/Mexico within 9-12 months; deploy first-sale valuation, duty drawback, and tariff engineering where feasible
Rationale: Supply base diversification and customs optimization can recapture 100-150 bps of margin while reducing geopolitical concentration risk
Role affected:Chief Sourcing/COO
Urgency level:immediate
Short-term Actions (6-12 months)
Build a tariff bridge with quantified levers: 2-4% selective price/mix lift, 80-120 bps gross margin gain from SKU rationalization and vendor consolidation, and 50-80 bps logistics savings via nearshoring
Rationale: A quantified bridge converts a $160M headwind into trackable workstreams and guides capital allocation to the highest-ROI actions
Role affected:CFO
Urgency level:short-term
Concentrate on 10-15 hero families at Coach and 5-8 at Kate Spade; implement 2-3 staged price tests on top SKUs and reduce long-tail handbag styles by 10-15%
Rationale: Focus and pricing power on high-velocity SKUs lift AUR, simplify buys, and curb markdowns, offsetting duty costs without broad-based price hikes
Role affected:CMO/Merchandising
Urgency level:short-term
Risks & Opportunities
Primary Risks
- Consumer pushback or demand elasticity from price increases, especially in outlet and wholesale channels
- Supply chain disruption or quality slippage during rapid vendor transitions out of China
- Tariff scope or rate escalation exceeding current assumptions, extending cost headwinds
Primary Opportunities
- Assortment rationalization and vendor consolidation to unlock 80-120 bps gross margin improvement
- Coach premiumization and DTC mix gains to drive 2-4% AUR growth with limited volume loss
- Portfolio focus by offloading Stuart Weitzman, eliminating low-margin dilution and redeploying capital to Coach and Kate Spade