Why Kate Spade is a problem for Tapestry

NOTE: On Sept. 4, 2019, Tapestry unexpectedly announced that CEO Victor Luis would step down and be replaced by chairman Jide Zeitlin.

Kate Spade is caught in the middle — not luxe enough for the high-end LVMH shopper, not affordable enough to compete with Zara or Target. Who buys $298 fashion sneakers? A couple hundred dollars more and you could nab some Golden Goose kicks. Cut the price tag in half and you're still looking at a pretty nice pair of Stella McCartney Adidas shoes.

Kate Spade Sneakers

This mid-tier no man's land of fashion is one reason Cowen downgraded Kate Spade owner Tapesty (TPR), even though Oliver Chen and the team at Cowen actually like the Kate Spade brand: "Despite an inexpensive valuation, we prefer to move to the sidelines given lack of visibility on Kate Spade."

Chen says Kate Spade has had negative comp-store sales each quarter since Tapestry acquired the brand, and like many shoppers, is looking for some of the brand's signature fun to come back.

"We also miss Kate Spade’s novelty execution,” Chen says. “Inventory investments should not necessarily be large in novelty but need to be impactful and whimsical in order to drive traffic to the stores and invest emotionally behind the brand."

When you add the fashion challenges to the declining outlet traffic numbers and decelerating inbound Chinese tourist trends, the picture at Kate Spade could be even cloudier. Kate Spade is particularly reliant on its outlet business with more outlet stores than full price retail stores.

Cowen moved Tapesty to Market Perform from Outperform with a $22 price target.

This story was originally published on Sept. 1, 2019.

Jen Rogers is an anchor for Yahoo Finance. Follow her on Twitter @JenSaidIt.

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