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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.

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

Strategic Analysis

Next 30-90 days: elevate pricing tests on select Coach and Kate Spade hero SKUs, pause low-velocity handbag introductions, and initiate supplier re-sourcing RFPs to Vietnam, India, and Mexico. Communicate a disciplined SKU rationalization roadmap to wholesale partners to reduce duplication and buy complexity. Clarify Stuart Weitzman separation options to stabilize investor sentiment.

Over 6-12 months: tariff costs risk compressing EBIT margins by an estimated 200-300 bps absent mitigation. A faster sourcing pivot (target: reduce China-origin units by 20-30 percentage points) plus 2-4% price/mix lift and 10-15% SKU reduction can collectively offset most of the $160M impact. Portfolio focus should strengthen Coach's premium positioning and accelerate Kate Spade brand repair with tighter assortments.

Accessible luxury peers (Michael Kors, Tory Burch) face similar duty exposure; brands with stronger pricing power and diversified sourcing gain share. Coach's brand equity and DTC scale provide an advantage to pass through selective price increases versus wholesale-heavy competitors. European luxury houses with EMEA production are less exposed on duties but compete at higher price tiers, leaving room for Coach to premiumize.

Suppliers in China face order reallocation risk as Tapestry migrates production; factories in Vietnam/India/Mexico stand to gain volumes. Wholesale partners will see tighter buys and fewer duplicative styles, improving sell-through and reducing markdowns. Consumers should expect modest price increases on bestsellers but a clearer, more focused assortment; logistics partners may see pre-buy volume surges ahead of tariff milestones.

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

Market Context

Tariff-driven cost inflation intersects with a softer China luxury recovery and a value-conscious Gen-Z consumer. Accessible luxury is more exposed to duties than European hard luxury, making sourcing agility and DTC pricing science decisive. Coach can leverage brand strength and lower promotional dependence relative to Michael Kors, while Kate Spade must streamline to reduce markdowns. Rising producer prices suggest upstream cost pass-through is likely, raising competitive pressure on brands with weaker pricing power or heavy wholesale reliance.

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