Image: Ralph Lauren store at 867 Madison Ave in New York, Source: ralphlauren.com
While ultra-premium luxury brands have steadily increased their prices, some consumers are starting to resist the relentless hikes. This shift has created a lucrative opportunity for more accessible luxury brands like Coach and Ralph Lauren, both of which have outperformed expectations with strong sales growth.
Mid-Tier Luxury Gains Momentum
Tapestry, the parent company of Coach, reported a significant 10% revenue increase on a constant-currency basis for the quarter ending December 28, 2024, far surpassing Wall Street’s projection of 3.6%. Similarly, Ralph Lauren posted an 11% rise in constant-currency revenue during the same period, exceeding analyst expectations. Both brands experienced expanded profit margins, highlighting their ability to grow revenue while maintaining healthy earnings.
A key driver of this success has been strategic price adjustments. Coach, in particular, has consistently raised its handbag prices, implementing price increases in 19 of the past 20 quarters. Similarly, Ralph Lauren increased prices by 12% in its most recent quarter, continuing a trend of incremental price hikes. The brand anticipates further single-digit increases in the upcoming period.
This pricing strategy stands in contrast to ultra-premium luxury labels, where consumers appear to be reaching a tipping point. LVMH, the global leader in luxury goods, has seen slower growth, with revenue increasing just 1% in its most recent quarter. The company acknowledged that some brands within its portfolio have pushed prices up aggressively without offering significant changes to product value, which may be dampening demand.
Evolving Market Dynamics
Traditionally, high-end luxury conglomerates have dominated market share, leveraging their vast resources to maintain a competitive edge in branding and marketing. However, recent scrutiny into pricing strategies has raised concerns about perceived value. One notable example involved an investigation revealing that Dior paid a supplier just €53 (approximately $55) to manufacture a handbag that retailed for €2,600.
By contrast, mid-tier luxury brands are demonstrating resilience, especially in regions historically dominated by European luxury houses. In the latest quarter, Tapestry reported an impressive 42% revenue growth in Europe, while Ralph Lauren recorded a 16% increase. American brands appear to be gaining traction with European consumers, who see them as offering better value relative to their luxury counterparts. The perception of scarcity may also be playing a role—since American luxury brands are not as widely available in Europe, they hold a certain exclusivity that boosts their desirability.
Not Every Affordable Luxury Brand Is Thriving
While brands like Coach and Ralph Lauren have successfully navigated the current market, others have struggled. Michael Kors, for instance, has faced difficulties in maintaining pricing power. Capri Holdings, which owns the brand, reported an 11.7% decline in constant-currency sales for the quarter ending December 28, 2024. The company had attempted to raise prices too quickly, resulting in a drop in consumer demand. Following this report, Capri’s shares plunged by 10%, underscoring the risks of poorly executed pricing strategies.
The success of Coach and Ralph Lauren is rooted in long-term brand repositioning. Over the years, both companies have refined their image by reducing reliance on discount retailers, limiting promotions, and focusing on high-quality, stylish products. In contrast, Michael Kors continues to struggle with heavy discounting. While the brand’s handbags initially carried a ticket price of approximately $450, they were often sold for under $100 in 2023 due to excessive markdowns.
Capri Holdings had been banking on its acquisition by Tapestry to address these issues, but the deal was ultimately blocked by regulatory intervention. Without this merger, the company now faces the challenge of stabilizing its brand without external support.
The Future of Affordable Luxury
Coach appears to have room for additional price increases, provided they are justified by innovative product designs. A strong example of this strategy was the launch of the Pillow Tabby in 2021, which became a viral sensation and now retails for $550 – $100 more than its predecessor. The brand has maintained a strategic position below the $1,000 price threshold, which is often considered the entry point for true luxury handbags.
Market demand for products priced around $1,000 remains robust. Tapestry executives recently noted that a version of Coach’s Empire bag, retailing for roughly $900, quickly sold out. Similarly, Capri Holdings reported strong early demand for Versace’s newly launched $1,000 Tag Bag, indicating that consumers are still willing to invest in luxury – so long as the pricing aligns with perceived value.
From an investment perspective, mid-tier luxury brands remain attractively priced. Tapestry’s stock is currently trading at less than 16 times forward 12-month earnings, while Ralph Lauren trades at approximately 20 times. In comparison, European luxury conglomerates command valuation multiples closer to 25 times earnings. As long as these brands can maintain a balance between strategic price hikes and product innovation, they are well-positioned to capture an even greater share of the luxury market while delivering strong returns to investors.
Image: Ralph Lauren store at 867 Madison Ave in New York, Source: ralphlauren.com
While ultra-premium luxury brands have steadily increased their prices, some consumers are starting to resist the relentless hikes. This shift has created a lucrative opportunity for more accessible luxury brands like Coach and Ralph Lauren, both of which have outperformed expectations with strong sales growth.
Mid-Tier Luxury Gains Momentum
Tapestry, the parent company of Coach, reported a significant 10% revenue increase on a constant-currency basis for the quarter ending December 28, 2024, far surpassing Wall Street’s projection of 3.6%. Similarly, Ralph Lauren posted an 11% rise in constant-currency revenue during the same period, exceeding analyst expectations. Both brands experienced expanded profit margins, highlighting their ability to grow revenue while maintaining healthy earnings.
A key driver of this success has been strategic price adjustments. Coach, in particular, has consistently raised its handbag prices, implementing price increases in 19 of the past 20 quarters. Similarly, Ralph Lauren increased prices by 12% in its most recent quarter, continuing a trend of incremental price hikes. The brand anticipates further single-digit increases in the upcoming period.
This pricing strategy stands in contrast to ultra-premium luxury labels, where consumers appear to be reaching a tipping point. LVMH, the global leader in luxury goods, has seen slower growth, with revenue increasing just 1% in its most recent quarter. The company acknowledged that some brands within its portfolio have pushed prices up aggressively without offering significant changes to product value, which may be dampening demand.
Evolving Market Dynamics
Traditionally, high-end luxury conglomerates have dominated market share, leveraging their vast resources to maintain a competitive edge in branding and marketing. However, recent scrutiny into pricing strategies has raised concerns about perceived value. One notable example involved an investigation revealing that Dior paid a supplier just €53 (approximately $55) to manufacture a handbag that retailed for €2,600.
By contrast, mid-tier luxury brands are demonstrating resilience, especially in regions historically dominated by European luxury houses. In the latest quarter, Tapestry reported an impressive 42% revenue growth in Europe, while Ralph Lauren recorded a 16% increase. American brands appear to be gaining traction with European consumers, who see them as offering better value relative to their luxury counterparts. The perception of scarcity may also be playing a role—since American luxury brands are not as widely available in Europe, they hold a certain exclusivity that boosts their desirability.
Not Every Affordable Luxury Brand Is Thriving
While brands like Coach and Ralph Lauren have successfully navigated the current market, others have struggled. Michael Kors, for instance, has faced difficulties in maintaining pricing power. Capri Holdings, which owns the brand, reported an 11.7% decline in constant-currency sales for the quarter ending December 28, 2024. The company had attempted to raise prices too quickly, resulting in a drop in consumer demand. Following this report, Capri’s shares plunged by 10%, underscoring the risks of poorly executed pricing strategies.
The success of Coach and Ralph Lauren is rooted in long-term brand repositioning. Over the years, both companies have refined their image by reducing reliance on discount retailers, limiting promotions, and focusing on high-quality, stylish products. In contrast, Michael Kors continues to struggle with heavy discounting. While the brand’s handbags initially carried a ticket price of approximately $450, they were often sold for under $100 in 2023 due to excessive markdowns.
Capri Holdings had been banking on its acquisition by Tapestry to address these issues, but the deal was ultimately blocked by regulatory intervention. Without this merger, the company now faces the challenge of stabilizing its brand without external support.
The Future of Affordable Luxury
Coach appears to have room for additional price increases, provided they are justified by innovative product designs. A strong example of this strategy was the launch of the Pillow Tabby in 2021, which became a viral sensation and now retails for $550 – $100 more than its predecessor. The brand has maintained a strategic position below the $1,000 price threshold, which is often considered the entry point for true luxury handbags.
Market demand for products priced around $1,000 remains robust. Tapestry executives recently noted that a version of Coach’s Empire bag, retailing for roughly $900, quickly sold out. Similarly, Capri Holdings reported strong early demand for Versace’s newly launched $1,000 Tag Bag, indicating that consumers are still willing to invest in luxury – so long as the pricing aligns with perceived value.
From an investment perspective, mid-tier luxury brands remain attractively priced. Tapestry’s stock is currently trading at less than 16 times forward 12-month earnings, while Ralph Lauren trades at approximately 20 times. In comparison, European luxury conglomerates command valuation multiples closer to 25 times earnings. As long as these brands can maintain a balance between strategic price hikes and product innovation, they are well-positioned to capture an even greater share of the luxury market while delivering strong returns to investors.
