Tapestry's (TPR) CEO Jide Zeitlin Presents at Bernstein Strategic Decisions Conference (Transcript)

by

Tapestry, Inc. (NYSE:TPR) Bernstein Strategic Decisions Conference May 28, 2020 4:00 PM ET

Company Participants

Jide Zeitlin – Chairman and Chief Executive Officer

Joanne Crevoiserat – Chief Financial Officer

Conference Call Participants

Jamie Merriman – Bernstein

Jamie Merriman

Good afternoon. I’m Jamie Merriman, Bernstein’s U.S. frontline and specialty retail analyst. Thank you very much for joining us. Before we get started, I want to go through a few housekeeping items. First, I want to direct you to Pigeonhole, our interactive question forum. You should see a link on the left side of your window. When you click that link, it will open up a new window in your browser. The video will continue in the prior browser. You can submit your own questions in the back of the top, and you can also vote on questions already submitted by hitting the up triangle next to any question.

So please go ahead and click that link now and start submitting questions for Tapestry. We’ll make sure spend some time on those questions towards the end of the session. You’ll also see a link to a Procensus poll on the left side of the screen. Please do take a minute. It will really just take 60 seconds at the end of the session to leave your feedback for Tapestry. Finally, please reach out to your Bernstein sales contact or to corporate marketing, if you have questions or if you’re experiencing any technical difficulties.

With that out of the way, I’m thrilled to be joined today by Jide Zeitlin, Tapestry’s Chairman and CEO; and Joanne Crevoiserat, Tapestry’s CFO for a fireside chat. Jide was elected to Tapestry’s Board of Directors in 2006, and served as Chairman since 2014 and became CEO of Tapestry in September 2019. He’s also currently serving as interim CEO of Coach. Joanne joined Tapestry in August 2019 from Abercrombie and Fitch, where she was EVP and COO from 2017 through to 2019, and working – previously served as CFO. Prior to Abercrombie and Fitch, Joanne held a number of senior roles at Kohl’s, Walmart and May Department Stores.

Jide and Joanne, welcome, and thanks for being here. And I’ll turn it over to you for some opening remarks.

Jide Zeitlin

Terrific. And thank you, Jamie. It’s great to be here. And hello, everybody. So both Joanne and I will make some comments, but I’ll begin really by focusing on three different topics. First is clearly a challenging environment. The one in which we think we’re well positioned due to a number of steps that we took quickly and early and one that we continue to take. And I’ll come back in a moment and fill in a little bit under that.

Secondly, we believe that we have done a very effective job at leveraging our global – as well as our multi-brand platforms to be able to basically gain insights into best practices and then to migrate those rapidly around the globe across our brands. And then thirdly, we’ve really used this opportunity to lean into the value of our products as well as our values as across Tapestry and across our three brands in ways that we believe have both strengthened our relationship with our people internally, with our customers as well as have guided a lot of decisions that we’ve taken and we’ll continue to guide decisions that we take going forward.

But for just a moment, first at the beginning in terms of being well positioned Joanne will go into more depth in terms of a number of very specific steps that we’ve taken and are continuing to take. But I would note, as Jamie, as you mentioned, I began and this will roughly, call it, nine months or so ago. And one of the things that we initiated shortly after I stepped into this role was a deep dive into both our strategy and our brands, led by our teams internally as well as with some assistance from a couple of outside consulting firms and so we developed a very clear view in terms of our go-forward strategy well before the COVID crisis hit. And as it would be as we’ve really gone back and really looked hard at those strategies that we were beginning to initiate before COVID.

We believe that they were the right strategies then, and we think they’re even more so the right strategies going forward. We’ll talk, I’m sure, as we get into the Q&A around everything from our increased focus in our own idiosyncratic way on consumer centricity. Our focus on being more data driven, really using data and tools kind of 21st century tools to make decisions to drive our business. And then also really being very much making sure that we’re – we’ve reduced our cost structure and that we’re much leaner and more agile. Both because we believe that, that allows us to be more responsive to our consumers, but also because it will allow us a lot more operating leverage as we come through this difficult period of time.

Briefly in terms of just leveraging our global footprint and our multi-brand platform, example I would use is our businesses in China and South Korea where we’ve been able to very methodically glean insights from those businesses as they went through the real deepest part, we believe, we hope of this crisis. A month or two ahead of our businesses in North America and Europe and taking those insights to inform how we’ve made decisions, both in Asia, but also in North America and Europe. And that’s everything from understanding what that reopening process looks like, understanding how the – when you go from a period where you’re 100% digital to one where you’ve got bricks and mortar, store open, how you manage that migration across and find that right balance between brick-and-mortar and digital.

As well as really leveraging the relationship, that engagement with our consumer, which we have found globally is as strong as ever, and frankly, stronger in this period of time where we’ve had a lot of our stores closed. We – I believe we’ve mentioned it here now, by the end of this week, we expect to have 1,100 of our stores open globally. So roughly 75% of our direct fleet and 400 of those 1,100 will be in North America. And lots of good learnings that we’ve taken from, again, China and South Korea, where we’ve seen really good progress, steady progress, both in terms of traffic, in terms of revenues to the point – to the place where today in those two markets, we’re running positively relative to where we were a year ago.

And then the last comment is just back to leading with our values, where we’ve been very focused on our people and on our customers, and that’s everything from where we believe in our sector we’ve protected our field or our store employees longer than most, if not all of our peers here in North America, and that was something we did very deliberately because we understand the important role that they play with our customers as we move back into reopening of our stores where we’ve been maniacally focused on health and safety.

And particularly with our – clearly, with our employees, but also with our customers and have been very deliberate in our protocols for reopening and believe we’re well positioned in that respect. And then also with our communities that we’re a part of where we have, we’re proud to have contributed over $9 million to a range of different ways of investing back in our community.

One of which I’d highlight is where we have partnered with New York City in making capital available for loans to small businesses. Just because we think there’s such an important part of the ecosystem that it’s both the right thing to do, but it’s also really important as we look at getting back up and fully running in terms of having our stores across North America fully opened.

So I’ll pause with that and hand it over to Joanne. So thank you, and again, look forward to this conversation.

Joanne Crevoiserat

Thanks, Jide. And just to elaborate a little bit on one of the points Jide was making. We have as a company, taken very – move very quickly to reinforce our liquidity and enhance our financial flexibility as we’ve moved through, as this pandemic has moved through the – across the globe. And we’re also doing that with an eye on preparing for sales growth. Our first order of business is really offensive, and that is to support revenue today. And today, as you might imagine, that means leaning into the digital business. And that’s been a real bright spot in our business as we’ve navigated the pandemic and the spread of the pandemic across the globe.

We are seeing customers, as Jide mentioned, engaging more strongly with our brands across many of our digital platforms across the globe. So that has been a real bright spot and we’re also reopening stores. So returning to reopening stores first, as Jide mentioned, in China and South Korea, and now that’s moving in a phased approach across the globe, with now 75 – about 75% of our stores open globally at one level or another. We are taking a phased approach to that. And our stores in North America approximately 400 are open, but mostly with curbside or storefront pickup only, a small percentage, a very small percentage at this point are welcoming customers into our stores, and that is really with an eye on health and safety of our associates, our customers and the broader communities in which we operate.

So it’s good to see that gaining traction, but we have had a strong focus on supporting revenue today and as we move through this crisis. We’re also on a more defensive footing, taking aggressive action to control costs. Starting with SG&A, driving SG&A savings, that means eliminating all non-essential spend, taking actions in terms of reducing corporate compensation and accelerating some of the initiatives Jide talked about that we had begun pre-pandemic crisis. We’re accelerating some of those initiatives to become a more agile organization and be more responsive, but also drive efficiencies.

We’ve also worked hard and quickly to tightly manage inventories, and this has been a particular bright spot in terms of the traction that the organization got quickly, really preserving a lot of working capital, but more importantly, positioning our inventories more in line with demand we expect. And just one footnote on that, our inventories are very flexible. We have the ability to ship globally, which gives us flexibility to move our inventory around the world as we see demand trends unfolding.

It’s also less seasonal in nature, which gives us the opportunity to reflow our inventory across months of the year. And the teams have done that and then reduced the buys as we go through the back end of the year to make sure that we have matched that supply and demand moving through the year. So feeling good about the actions, but continuing to keep a strong focus on managing inventories.

In addition to reducing our investments in capital, our CapEx, reductions began in Q4, our fiscal fourth quarter as we began to see the impact on demand of the pandemic and we expect them to continue into our fiscal year 2021 where we’re lowering our capital investments by over $100 million versus our normalized run rate, which still gives us an opportunity to invest in the highest return projects. So we will still be investing in our business, more of those – that investment targeted towards digital capabilities, given the environment and where we see the customer moving.

We’ve also taken other actions to enhance our liquidity. As we came into the beginning of this quarter, we drew down $700 million of our $900 million revolver. To have the cash on our books to provide the flexibility for us to navigate through this crisis and come out strong on the other end. We’ve also suspended our quarterly cash dividend and our share repurchase programs as we navigate through the next few months and quarters.

Our focus is really near-term to stabilize the business and enhance our liquidity. So the actions we’re taking now are in an effort to ensure up our liquidity, ensure we can navigate through the crisis with the flexibility needed. We’re also very focused on streamlining our operations and rightsizing and driving efficiencies. So as we look to a return to growth, driving that operating leverage that Jide mentioned earlier.

And Jamie, I’ll hand it back over to you.

Jamie Merriman

Great. Thanks, Joanne. And so Jide and Joanne, you both mentioned growth. Jide in your analysis of the brand that you started when we executed last year, Joanne, in terms of how you’re positioning the business to come out of this crisis. And I’m wondering if you can just talk about your belief in the growth potential of the three brands, your confidence in that growth opportunity and the appeal of the sector, the aspirational luxury segment more broadly.

Jide Zeitlin

Absolutely. So why don’t I start, and Joanne clearly, please join. First of all, when we think about coming out of this time period, we go – we look at the power of our brands and the positioning of our brands. And we believe that with brands that are excessively priced that they will do extraordinarily well for a consumer, clearly has taken some battering around the globe. To be able to really recognize the real value that we deliver that each of our brands deliver in their own ways. And that’s not just kind of theoretical when we look back at historical periods.

We have come out of whether they are economic downturns or whether they’re natural crisis very strongly and more often than not have taken market share during that period, particularly from the traditional European luxury players. And so history would tell us that we’re well positioned for that. And when we think to some degree about the – our consumer, our average household income for our consumer is a little bit different by brand, but how ours – right around a $100,000.

So this is a product for them that is – that they can clearly afford and is a product that is – if you think about a handbag as an example, or footwear, they have real functional needs, real functional uses and so there is a real – we found at least real demand and desire. And we’ve seen the last thing I’d just say on that front is what we’ve clearly had our digital channels opened throughout this period, and we’ve seen the level of consumer engagement has been as robust as ever throughout this period of time.

Jamie Merriman

And so I guess, just picking up on that, it sounds like you don’t have any concerns about the handbag category, in particular the disproportionately negatively impacted by the pandemic. I mean consumers based on your data so far, still seem to want handbags?

Jide Zeitlin

Yes, so I’m wired to be paranoid. So it’s not that we have no concerns. We’re always even in a much sunnier climate. We’re always focused. But from where we sit, just to put some context around it, we measure the premium handbag, small leather good market is going into this downturn at roughly on a global basis, $50 billion in size. We believe that the impact of this crisis will have brought that down by a little bit under 20% or so. But we also believe that as we come through this, that we will come back to a growth rate on a global basis of roughly 7% or so per annum, a little bit faster in certain geographies, such as China, a little bit slower in geographies such as Europe. But we believe that the fundamental long-term growth trajectory of this category is strong and is one that gives us great comfort in terms of the positioning of our brands and our products against that growing market.

Jamie Merriman

And where would you expect North America to sit within that band versus global, China, Europe?

Jide Zeitlin

Roughly right around the global mean, so roughly around 7%.

Jamie Merriman

Okay. In terms of stores reopening, you gave us some numbers, which is fantastic and talk about the fact that most are still using curbside pickup. How do you evaluate weather? And at what point to are fully opened stores?

Jide Zeitlin

Absolutely. So first, kind of lining is obvious market is the – just making sure that the regulatory environment is one, which allows you to open the stores. And so we’ll do it within that context. Secondly is we take the lead of our – from our employees and their comfort level and preparedness to go back into the stores. And then – and in addition to our employees really looking at where our consumers are and both in terms of our sense in any given market, both from just our relationships there as well as what we are seeing digitally in a given market.

And then we also look at, and particularly in our mall-based settings, who else is opening up, and we look to have roughly at least 70% of other tenants in a mall-based setting, be coming back to open up their stores. And then we also look at specific adjacencies relative to other brands that are important to us, whether those are the [indiscernible] into the world, et cetera. So if we look at our holes, we have a very specific protocol that we look at. But really driven in part by first regulatory, then our employees and our customers and then the adjacencies around us.

Jamie Merriman

Okay. And of the changes that you’ve implemented to stores and your operating procedures, which of those changes do you think are likely to be more permanent in near-term?

Joanne Crevoiserat

Yes, I’m happy to.

Jide Zeitlin

Yes, Joanne, would be great.

Joanne Crevoiserat

Yes, I’m happy to jump in on this one, Jide. And I think what we’ve seen coming into the crisis was a shift of consumers moving their shopping behaviors, more digitally, more omni-channel focused. And as we’ve begun to reopen stores and move through this crisis, we’re only seeing that accelerate. So there are definitely things that we have implemented as we’ve moved through the crisis to engage our consumers, and we’re seeing great response. We’ve seen consumers reach out to us to engage with our brands.

Whether it be the omni-channel or digital capabilities that we’ve rolled out very quickly, or things like social media shopping parties. The teams were innovative and establishing as a way to connect with consumers as they reached out to us. I can see those types of innovation continuing as we continue beyond the crisis. And as we adjust our organization and our operating model, it is with an eye on being more agile to be able to support more of these consumer changes, behavior changes moving forward.

Jamie Merriman

Okay, great. And Joanne, that sort of picks up on one of the things that you mentioned in your opening remarks in terms of where the investment is focused. I was wondering if you can just elaborate a little bit more on the types of investments that you’re making today? And what should we expect from Tapestry in three years from now from a capability perspective that maybe doesn’t exist today?

Joanne Crevoiserat

Yes. The opportunity that we see in digital continues to grow, and it becomes – it is an opportunity for us to more strongly engage with our customers. All of our customers through digital and being able to reach them where they are. I think we had historically put up some gates around how we pigeonholed consumers where they shopped by channel. And our intent is to be much more transparent with our consumers and reach and engage them through our digital channels.

We’ve begun that work as we’ve moved into and through this crisis. I think as we move through it, our investments are continuing to support a more seamless experience for our customers that what they see on our digital channels, mirrors what they can see and expect as a touch point in our stores. And we’re also understanding what that role of the store is. So as we’ve moved through the capabilities of omni-channel, buy online and pick up in-store or engage with an associated in a different way. Supporting those capabilities in a seamless way for our consumers is our focus, and we will continue to invest in those capabilities.

Jamie Merriman

Okay, great. Maybe just then picking up on that relationship between visible and the store. Jide, I think you hinted on the last earnings call about rethinking the store footprint, maybe did more than hint. But can you talk about changes to the physical number of stores and actions that you’re planning around specific brands from a reorganization perspective? And I’m also wondering how much of that was planned pre-crisis versus is an outcome of what we’ve seen over the past few months.

Jide Zeitlin

Absolutely, Jamie. So we – and much of this was we were thinking about focused on pre-crisis. But clearly, – the digital long-term or secular trend is one that’s been accelerated by the crisis. And so we’ve accelerated our thinking. And first and foremost, we have – they are evaluating our brick-and-mortar stores very rigorously. So in terms of their level of productivity, we’re quite disciplined as leases come due as to which ones we re-up and which ones we don’t.

And we will – we have been and we will continue to be quite disciplined in terms of just of likely rationalizing our brick-and-mortar stores, particularly here in North America. We will likely continue to grow our footprint in high-growth markets such as China. But I suspect you’ll see a real rationalization here over time. But when I say real rationalization, brick-and-mortar is clearly very important to us, will continue to be important over time. But it’s really finding a place where there is just greater equilibrium between digital and brick-and-mortar.

Jamie Merriman

And in terms of that store rationalization, does the plan involve both outlet and your more full-priced mall-based stores.

Jide Zeitlin

It will be deeper in full price retail stores. Then with outlet, just given the profitability profile of – and the productivity profile of those two channels. But we’re certainly holding outlet to as much of a ruler or standard as we are retail.

Jamie Merriman

Okay, great. Can you talk a little bit, as I mentioned in the intro, Jide and Joanne, you both come to your roles in the last year. And I know there’s been other changes in the senior leadership. You just talk about leading through this crisis and what you’re doing as a team to make sure that the transition that the brand level are smooth and that learnings are being shared across the brands.

Jide Zeitlin

Absolutely. So maybe I’ll pick that one up. So we’ve got a great team. It’s a nice balance between long-tenured executives and newer executives. So Joanne and I are both clearly within a year in our roles. We have new brand presidents at Kate Spade and Stuart Weitzman, although Georgia with Stuart Weitzman is a longer-term Coach employee, Tapestry employee.

And so we believe we’ve got a nice balance there, where we both have historical knowledge as well as people who come in with fresh perspectives. We think we have a nice mix in terms of people’s backgrounds and experiences where we complement each other well. And so that has worked quite well.

And then, frankly, and I hate to put it this way. But if there is a silver lining to this very unhappy period of time, it is – this working through this crisis has really pulled us together and when it – we were a little bit lasting the other day because we have our core leadership team. We call our Executive Committee. And we meet every evening, every day, every evening, and Liz and Giorgio, who just crossed kind of into, I believe, their 10-week mark in their roles. We’re kind of laughing and lis who came from the outside. We had, I believe, had something like 10 days in the office before we all went remotely. Yet, she’s had a huge impact. She’s landed running as Giorgio and just talked about just how close we’ve become going through this period.

The last thing I’d say is clearly, there’s a lot more visibility on those of us at the Executive Committee level. But if you go down a level or two, we’ve got really strong teams, whether regional heads in different parts of the business, across the globe as well as across the brand. So it’s all come together. You never wish this clearly on anybody. But if anything, this period has pulled us a lot closer and has allowed us to each leverage both our newness, our experience in the organization as well as just our different perspectives that we bring to our roles.

Jamie Merriman

Thank you. I’m just going to remind investors that if you do have any questions to submit for Jide and Joanne please [indiscernible] One of the things that Coach in particular, I think, has spent so much time and effort on over the past several years has been really moving away from the discounting image of the brand that had plagued at pre-2014. So can you just talk about how we think about price integrity longer-term in light of some of the demand and inventory challenges that I think we’ll be present over the next few quarters.

Jide Zeitlin

Absolutely. So we’re very focused across all three brands, but Coach in particular. On really the – presenting our products in value and image enhancing ways and being very deliberate in looking to increase the AUR, I think you may be familiar with work that we’ve talked about in a couple of recent earnings calls where we very deliberately focus on our handbag AUR and outlet and how we have brought that figure up pretty consistently in recent quarters.

And frankly, our experience as we’re going through this crisis is that we’ve actually been able to continue to do that. And we’ve done that not simply by just increasing prices, but by very deliberately spending time when we talk about being data-driven and being very consumer focused, spending time in focus groups with consumers, understanding what type of functionality they would pay more for and then building that into products and then getting that value back. We’ve also been very deliberate in looking at the promotional cycle and pressures and taking steps to walk those back to step back from that to be to be disciplined on that front.

And Joanne had mentioned in her opening comments, how, for example, we had moved very quickly to pull back on our inventories, in particular, to cut back on two major deliveries. And so we feel quite good about our inventory levels, which from where we sit, both is a great balance sheet – is great from a balance sheet perspective. But also has margin implications because you don’t end up having as much pressure to necessarily move inventory or to use discounting or promotions as a way of moving inventory.

And it hopefully goes without saying one of the benefits we have in our categories, particularly handbags, which are much less seasonal than, for example, apparel, is that you can really flow your inventory more deliberately across time and don’t necessarily have that same type of pressure on you to move your inventory at a specific time or have the turns stay along you.

Joanne Crevoiserat

Yes. And I’ll just add to that, Jamie. Just that continues to be a strong focus, as Jide mentioned, across all of our brands. As a CFO, we love AUR growth and the leverage that it brings, but our organization is very focused on it through the actions that Jide mentioned and a couple of data points, even as we’ve been navigating through this crisis, we’re not taking our eye off that ball. We have seen higher-margin performance in our digital channels as we’ve navigated through this crisis. And as well as we’ve been reopening in China, we have continued to have a priority on lowering that discount rate and driving higher margins there as well. So a couple of data points to the positive. Certainly, with this level of demand disruption in the environment. We’ll continue to watch the competitive environment around us, but it continues to be a strong focus in the organization.

Jamie Merriman

Great. Can you just talk a little bit about what you’re seeing in the competitive environment? Obviously, there’s a lot of challenged retailers out there. How is that impacting you? How are you watching it?

Jide Zeitlin

You want to talk about that, Joanne?

Joanne Crevoiserat

Yes. We maintain certainly very close monitoring of certainly pricing and inventory levels in our space, understanding our customers, our focus is controlling what we can control, understanding our customers and delivering value for our customers, and that has – we, as Jide mentioned, saw some traction in the last few quarters leading into the crisis. Of really listening to our customers and delivering product that they valued and would pay for. And we continue to do that work at the same time, monitoring the environment. But putting ourselves in the best position that we can be in to not have to leverage a discount lever to – just to move through inventory.

So we’ve made the difficult decisions we’re doing the work to reflow our inventories. And as you might imagine, we’re running a lot of scenarios. We’re planning conservatively as we move through this environment and to buy against those plans, puts us in the best position to be able to leverage our inventories and our go-to-market strategies to maintain pricing and brand health as we kind of move through this.

Jide Zeitlin

One thing, Jamie, I would just add on that is we’re very market share focused as we come through this crisis. And so – and I don’t mean to be kind of cute about it. But we think of probably our greatest competitor is ourselves. So when we talk about running our business better and the opportunities, we think that will come out of that. We think that, that has as much potential to drive our top line, but drive as importantly our market share as anything a competitor might do or not do.

Jamie Merriman

Yes, great. Joanne, you talked about planning conservatively. And one of the questions that I hear from investors is what happens to the event – in the event that there sort of second wave of shutdowns or the virus in the fall. Are there measures that you can put in place to be prepared for that. Is there anything you would do differently in hindsight having seen how the current period has played out?

Joanne Crevoiserat

Yes. I would say the first round as we navigated the crisis and the spread of the pandemic, we moved very quickly and closed stores to protect our customers to protect our associates and to be good citizens in the communities that we operate. And I would say that we would – and we continue to monitor the situation very carefully and closely and would make and are prepared to make decisions as necessary as we navigate the crisis. I don’t know, Jide, if there’s anything you would add to that. But I think the associate population was very thankful. Of the decisive actions we have taken and as well as the very measured approach that we have as we reopen to protect them and to protect our customers.

Jide Zeitlin

Yes. And I would just add something you said earlier, Joanne, in terms of – just from a commercial perspective. One is digital, digital, digital, right, really making the investments. If you look at our CapEx spend, we are significantly skewed towards just continuing to enhance our digital capability, both as a general matter, but also as insurance to the extent that we do have a second wave being able to lean into that quite heavily.

Jamie Merriman

Great. Well, given the digital, digital, digital comment, I’m going to turn to the digital because the most popular question is, what do you think the ceiling could be for online sales as a percentage of your sales mix. So can you just talk about how do you think the digital and store mix evolves over the next five years? And where do you think digital can go?

Jide Zeitlin

Yes. I’ll give you a short answer, which is one that our Board challenged us with at one of our recent Board meetings, and that effectively was can you build out the business so that it is roughly in parity between digital and brick-and-mortar, so roughly a 50% digital penetration. And that’s something that we’re excited about taking on and believe can be achieved.

Joanne Crevoiserat

Yes. And I would add that at the same time, I think we all have to be cognizant of how the lines continue to blur between physical and digital, and we’re seeing that quite a bit in the current crisis as consumers are engaging in different ways. We have expected and have seen that the role of the store is changing. I think that will accelerate. So the footprint of the store, the role the store plays and how we engage customers more in omnichannel will also be part of that evolving equation.

Jamie Merriman

With that, as a backdrop, digital is maybe 50-50, what are the conversations that you’re having with mall owners today? And I’ll add in the second difficult question, which is, what are your medium-term rental expectations for your A mall stores?

Jide Zeitlin

Yes. So we’re having active discussions, as you might expect, and globally. And I would say that, that many of our landlords, particularly in Asia and Europe have been quite thoughtful in terms of recognizing that there needs to be shared pain and being thoughtful as we think about what the longer-term model looks like. And we’re still deeper in conversations with some of our North America landlords but we have a strong view that both – this has been an act of God, so to speak, and is something that we should each share some part in as well as just as we think longer term, whether because of the increased role of digital, but weather also just because as we assess the relative sharing of the profit pie. We think that, that over time has to – should come to a better relative sharing. But all of that is work in progress as we speak right now in North America, in particular.

Jamie Merriman

As you think that some of those issues in terms of sharing of the pain and the future of digital versus visible retail how connected as the retail environment been? Is this a conversation that you’re having with other brand executives and everyone is on the same means or is it everybody for themselves, how is that – how is the dialogue going right now?

Jide Zeitlin

Our lawyers would tell us that those are not conversations that we can – so while this has been a moment where I think a lot of us have pulled together to just kind of share best practices around everything from health and safety in the stores, opening procedures, et cetera. We’re also very mindful of what we can and cannot talk about.

Jamie Merriman

Yes. Great. I’m going to turn to a couple more of the questions coming in from investors. So the next one is, you’ve talked about using digital for outlet. Can you discuss your strategy and specifically for Coach, how can you manage that will preserve a full price positioning and avoiding the issues seen pre-2014.

Jide Zeitlin

Absolutely. Well, I’ll go back to a comment that Joanne made before in terms of how we think about digital and outlet digital, in particular, at Coach. First of all, if you go back historically, it’s probably fair to just point out that our outlet consumer is quite distinct in many respects from our full-price retail consumer. We believe that the level of overlap relative to outlet is less than 5%.

And then secondly, in terms of our outlet business, we have historically put up clearly, guardrails, as Joanne mentioned earlier, around how we think about that digital – the digital business there. However, what’s very clear is that our consumer – our outlet consumer is very digitally engaged. And so by not putting ourselves in a position where we can engage with there, we have been – we’ve been limiting our dialogue with that consumer.

And particularly in the 21st century, where you’ve gotten the ability to be much more surgical in terms of how you engage with that consumer we believe that there are ways to engage with that consumer as an outlet consumer and not be messaging to your full price consumer. The other thing I would say is that, that line between full price and outlet consumer is increasingly blurred as you see consumers who will carry a very high end accessory and we’re a fast retail piece of clothing.

And so we believe you’ve really got to be willing to listen and follow that consumer a lot more closely. And a comment I made earlier about being much more focused on the value proposition and on presenting our products in ways that are image and brand-enhancing as opposed to focusing on promotions and discounts. We think we can have that relationship, that dialogue with the consumer in a way that does not damage the brand, whether it’s full price or outlet and in fact, in ways that we think only enhance the brand and enhance our relationship with the consumer. So we believe that there is real opportunity there going forward.

Jamie Merriman

Great. The next question from investors is, how has the performance been relative to your expectations in the stores that have reopened? And how has e-commerce results trended relative pre-COVID levels.

Jide Zeitlin

Sure. You want to take Joanne.

Joanne Crevoiserat

Sure. We did not provide guidance, certainly with the significant level of uncertainty that we see out there. So I unfortunately, can’t comment on – versus expectations. But what we have said and what we have seen is very, very strong digital business and compared to pre-COVID levels. We’ve seen an acceleration across all brands and across the globe in terms of digital engagement. And again, I talked about the innovation that we’re seeing within our businesses, really reaching out to engage our customers in different and new ways to enable that.

So very pleased with the way those businesses have held up and have been able to serve customers. And in terms of our brick-and-mortar business, and I can use China as the business that’s been open the longest we moved and reopened stores in that market and in South Korea, and we have seen a very nice, steady improvement in our business results in China. To the point where we’ve now flipped to a positive result in May. So it was a nice steady improvement. It wasn’t a light switch moment.

As consumers have continued to come back out and embrace shopping patterns. Having said that, we expect the model across the world to be different and probably slower in terms of consumers’ willingness to come back and engage. We are taking a phased approach with our reopening in the rest of the world. And we continue to monitor that, and we’ll stay close to it. But again, as I said, we’re planning conservatively positioning our business to – in line with conservative top line plans. And importantly, positioning our inventories there, and we expect to be able to navigate through this, stabilize the business and position us for growth as we move further into our fiscal year 2021.

Jamie Merriman

Great. I think we have time for about one more question. And this is a question that we are – the Bernstein analysts are asking all of the CEOs and CFOs that we’re talking to across the three day conference. We’re calling it our unifying question. We’ve touched on some of these topics. But as you think through and beyond the pandemic, how you expect your priorities to shift, especially as they relate to pending costs or to increasing levels of investment.

Jide Zeitlin

Absolutely. So when I start with that. Our sense is that it’s not night or day in terms of it’s not all of a sudden, a whole new set of priorities. I talked about how we had been doing work and had a real strategic vision coming into this crisis and how of anything, we’ve accelerated our focus on that. And so I’ll focus really on the three different areas. One is digital, which we’ve talked about. And so we believe that, that secular trend will continue and accelerate.

And we talked about the type of investments that we’re making to position ourselves well there and recognizing it’s not digital by itself, but it’s really, as Joanne has talked about, it’s omnichannel and that balance and that play back and forth between digital and brick-and-mortar, the customer who comes into the brick-and-mortar store, having spent an extraordinary amount of time researching online or vice versa. So we see those as being complementary, but we think part of a secular trend that has been and will continue to be accelerated by this COVID period of time.

Two, we talked about value and values and we believe that our extraordinarily well-priced for the quality and the design that we have built into our products. It really positions us well for where we – where the consumer is and is likely to be coming out of this COVID period of time. We also, as we do a lot of research and focus on increasing our position with millennial and Gen Z consumers see that values really matter to them. What does your brand stand for? How is it that you comport yourself as an organization on everything from product design to sourcing to a lot of the relationships that we have.

And so that is something that we think is very natural for our brands, use a cat space. As example, which is one of the original in many ways, kind of storytelling, community building type of brands, we believe we’re very well positioned both there on the value and the values front.

And then the last comment I’d make has to do with an increasing trend as we all sit at home in our sweat shirts and T-shirts, casual is increasing kind of casualization and look for convenience. And we’re very mindful of that. We think that will be an ongoing trend. It’s not one that is – even as people begin moving back to offices, it’s going to go away. And so we think about that from a product design and an assortment perspective. All three of which we believe speak well to our brands and say, well, with the platform that we have, both globally as well as multi-brand platform that we have.

Joanne Crevoiserat

And I’ll just add, Jamie, to that, just in your question between cost-cutting and investments that seems to be tension between the two. And we are very focused on balancing the near-term objectives and our long-term objectives. And I talked about playing offense with an eye on building our top line, but we’re playing defense and offense at the same time. Near term, we are focused on enhancing our liquidity and navigating through this with the right financial flexibility, but we are also implementing those efficiency initiatives that I touched on that will make us a more responsive and more agile company as we come through this and out of the other side of this crisis.

And we look forward to that day where we’re returning to growth, right? And when we do that, we’ll drive that operating leverage that Jide mentioned. So the changes and reductions that we’re making are fully with an eye on the organization and the responsiveness that we want to achieve on the other side of this. So that has helped us as we navigate the crisis.

Jamie Merriman

Great. Thank you both so much for joining us today. Thank you for your time. Thank you for your insight, and thank you to the investors who joined us this afternoon. For investors, again, please do leave your feedback for Tapestry via to present this call, and have a good night. Thank you again.

Jide Zeitlin

Thank you, Jamie. Thank you, everybody.

Jamie Merriman

Thank you.

Question-and-Answer Session

Q –