Table of Contents

1. Key Highlights:
2. Introduction
3. Record Growth Amid External Challenges
4. The De Minimis Dilemma
5. Strategic Pricing and Market Positioning
6. Supply Chain Management and Quality Assurance
7. Implementing Mitigation Strategies
8. Future Outlook: Growth and Innovation
9. The Long Game: Connecting with Young Consumers

Key Highlights:

• Coach marks a record fourth quarter with 10% revenue growth and a significant influx of younger consumers, primarily Gen Z and millennials.
• The abrupt cessation of the U.S. “de minimis” import exemption poses a substantial challenge, potentially increasing costs by $53 million for Tapestry, Coach's parent company, in 2026.
• Chief Executive Todd Kahn emphasizes ongoing innovation and strategic pricing to maintain brand strength and customer connection amid rising costs.

Introduction

The luxury handbag market is known for its volatility and ever-changing consumer preferences, but Coach has recently demonstrated resilience and innovation despite external pressures. As it enters a new fiscal year, the iconic brand revels in its strongest performance in 85 years, yet it faces an unexpected challenge from tariffs that could significantly impact profitability. Underlying this complexity is the recent termination of the de minimis exemption for low-cost imports—a move that disrupts the operational landscape for many businesses relying on cross-border e-commerce. This article delves into Coach's financial results, the implications of changing trade regulations, and the proactive measures the brand is taking to navigate the turbulent waters ahead.

Record Growth Amid External Challenges

Tapestry’s recent performance report details an exceptionally strong fourth quarter for Coach, revealing a 10% growth in revenue and a remarkable mid-teens percentage rise in average unit retail (AUR) for handbags. This achievement is underscored by the arrival of 4.6 million new customers in North America, 70% of whom fall within the millennial and Gen Z demographics. Such growth indicates a promising shift in consumer engagement and brand resonance, particularly among younger generations who are poised to define the future of luxury retail.

However, this encouraging financial trajectory is now juxtaposed against a backdrop of increased operational costs due to recent tariff changes. CEO Todd Kahn finds himself at the helm of a company that, while performing well, must pivot quickly to mitigate the adverse financial effects stemming from the loss of the de minimis exemption.

The De Minimis Dilemma

The "de minimis" rule previously allowed shipments valued under $800 to enter the United States duty-free, primarily benefiting direct-to-consumer shipments from abroad. Brands like Coach capitalized on this exemption to bolster their e-commerce operations, particularly for products manufactured in Asia. The abrupt end to this policy on August 4, 2025, following President Trump's executive order, creates immediate financial pressures that could reach an estimated $53 million for Coach in the upcoming fiscal year.

This newfound burden comes at a time when Coach is still reeling from existing tariff increases and retaliatory duties, presenting one of the most complex cost environments the brand has encountered in years. CFO Scott Roe has been vocal about the multifaceted impact of these tariff complications during recent earnings calls, emphasizing the need for strategic adaptations to manage supply chain intricacies while maintaining product quality.

Strategic Pricing and Market Positioning

Navigating the realities of increased costs, Kahn remains steadfast in his approach to pricing strategy. He points out that average unit retail has surged by over 80% since 2019, a rise driven less by cost inputs and more by brand prestige, innovation, and product desirability. Iconic Coach products, including the popular Tabby and Kisslock bags, have not only prevailed at standard prices but are commanding significant premiums in secondary markets. This trend reflects the brand’s enduring appeal and the effectiveness of its marketing strategies aimed at young consumers transitioning into professional life.

To maintain momentum, Kahn asserts that the brand will not merely adjust prices based on increasing operational costs. Instead, he envisions modest price increases—perhaps between $10 to $15 for specific products—to keep the brand accessible and appealing to the target demographic without compromising overall value perception.

Supply Chain Management and Quality Assurance

Addressing the sourcing complexities intensified by tariff adjustments, Coach takes a measured and relationship-driven approach to supply chain management. Relying on long-standing partnerships with suppliers that extend over 25 years, the brand emphasizes maintaining product quality while navigating the challenges imposed by tariffs.

Coach's strategy also benefits from its global footprint, with 40% of its business stemming from international markets unaffected by U.S. tariffs. This structural advantage buffers part of the company's operations against any negative repercussions arising from changes in U.S. import policies.

Implementing Mitigation Strategies

In response to the imminent challenges presented by new tariffs, Tapestry is already enacting mitigation strategies designed to streamline operations and optimize supply chain efficiency. Roe highlighted during the investor call that while immediate solutions may not be feasible, the company is focused on improving supply chain logistics while ensuring service integrity remains intact.

This commitment is critical in a market landscape where customer service is increasingly pivotal to brand loyalty. The company’s perseverance in maintaining its gross and operating margins amid these complexities showcases a proactive business model adaptable to emerging challenges.

Future Outlook: Growth and Innovation

Despite the impending headwinds posed by tariffs and economic uncertainty, Coach’s outlook for the next fiscal year remains positive. Kahn has articulated expectations for high-single-digit growth despite the anticipated $160 million drag from tariffs. His strategic vision focuses on leveraging the brand’s heritage while infusing fresh creativity and innovation to attract new customers.

“The opportunity is enormous,” Kahn stated, capturing the essence of the company's future prospects. His focus on continuing to innovate—coupled with a commitment to delivering compelling products—positions Coach favorably to capture a significant share of the market across vital consumer segments in the years to come.

The Long Game: Connecting with Young Consumers

At the heart of Coach's strategy is an underscoring need to connect deeply with young consumers. With an influx of millennials and Gen Zers into the market, the brand is aware that successfully engaging these demographics requires a nuanced understanding of their preferences and values. Kahn’s emphasis on creating "beautiful and engaging" products speaks directly to the aspirations of these consumers who seek not just products but a brand ethos that resonates with their lifestyle and ideals.

The commitment to sustainability, quality, and design innovation will be critical as Coach continues to refine its product offerings and marketing strategies to align with evolving consumer expectations.

FAQ

Q: How has Coach's financial performance changed in recent years?
A: Coach has seen significant growth, with a 10% revenue increase in the fourth quarter of its fiscal year 2025, marking the strongest performance in its 85-year history.

Q: What is the de minimis rule and how does it affect Coach?
A: The de minimis rule allowed shipments valued at under $800 to enter the U.S. duty-free. The recent end to this exemption increases costs for Coach, as it will affect its direct-to-consumer shipments and add approximately $53 million in expenses.

Q: What strategies is Coach implementing to mitigate the impact of tariffs?
A: Coach is optimizing its supply chain, focusing on maintaining relationships with long-term suppliers, and implementing efficiency gains in its operations.

Q: What is Coach's target market moving forward?
A: Coach aims to increasingly appeal to younger demographics, particularly millennials and Gen Z consumers, who constitute a large portion of its new customer base.

Q: Will Coach raise prices in response to increased tariffs?
A: While Coach may implement small price increases to offset costs, Kahn emphasizes that pricing strategy will focus on maintaining brand perception and value rather than merely responding to cost inputs.