Bags & Luggage

# Executive Summary * The Bags & Luggage industry faces significant pressure from a challenging macroeconomic environment, which is dampening consumer discretionary spending and bifurcating performance between strong and weak brands. * U.S. tariffs are a material headwind, directly impacting gross margins by up to 360 basis points and forcing costly supply chain diversification efforts away from China. * In response, companies are undertaking complex and disruptive supply chain restructuring, creating near-term operational risks and costs but offering long-term resilience. * Competitive dynamics are polarizing, with accessible luxury players showing brand strength, such as Tapestry's Coach and Ralph Lauren, gaining share, while others are forced into strategic resets. * Digital and direct-to-consumer channels remain the primary growth engine and a key source of margin accretion for companies that have invested effectively. * Capital allocation is focused on shareholder returns, exemplified by large buybacks at Tapestry and Ralph Lauren, and balance sheet fortification through debt reduction at V.F. Corporation in the face of uncertainty. ## Key Trends & Outlook The Bags & Luggage industry is currently defined by significant macroeconomic headwinds that are suppressing consumer demand and creating a polarized market. U.S. luxury spending fell 7% in early 2025, continuing an 8% decline from 2024, as economic uncertainty forces consumers to be more selective with discretionary purchases. This pressure on discretionary budgets rewards brands with strong value propositions while punishing others, leading to a wide divergence in performance. For instance, Ralph Lauren posted strong revenue growth of +17% in Q2 FY26, while Capri Holdings saw sales decline by -2.5% and reported an operating loss in Q2 FY26. The pronounced uncertainty has led multiple companies to withdraw or slash their financial guidance for the year. Compounding the demand-side challenges are severe cost pressures from U.S. tariffs, which directly erode profitability. Companies have quantified these headwinds in the hundreds of millions, with YETI citing a $100 million gross impact and a 320-basis-point hit to its gross margin in Q3 2025. This direct hit to cost of goods sold has made supply chain management the most critical operational issue facing the industry. The ongoing shift to digital and direct-to-consumer (DTC) channels, which now account for over half of luggage sales, offers a path to growth and higher margins for companies with strong omnichannel capabilities like Tapestry. However, the primary risk is a prolonged consumer downturn combined with persistent tariff costs, which could severely strain the balance sheets of less resilient companies, as seen with Funko's debt covenant challenges. ## Competitive Landscape The Bags & Luggage market is moderately concentrated, with Louis Vuitton holding a 6% share in 2023, and major players like Samsonite, LVMH, and V.F. Corporation dominating the travel bags segment. Within this structure, several distinct competitive models are evident. Several major players operate as diversified houses of accessible luxury brands, managing a portfolio of distinct names while leveraging centralized corporate functions to create efficiencies. This strategy allows for diversification across brands to smooth performance and provides scale advantages in sourcing and talent acquisition. However, it requires high-level execution to manage multiple brand identities without dilution. Tapestry exemplifies this model, successfully managing its Coach and Kate Spade brands and divesting Stuart Weitzman to sharpen its focus. Coach's strong performance is currently driving the company's success. In contrast, other firms focus on cultivating a single, monolithic global lifestyle brand that extends across a wide array of product categories and geographies, creating a cohesive and aspirational image. The key advantage of this approach is tremendous brand equity and pricing power, allowing a strong core brand to extend into new, high-margin categories like handbags and accessories. However, brand health is paramount, as any damage to the core brand's reputation can have devastating effects. Ralph Lauren operates under this model, with its "Next Great Chapter: Accelerate" strategy explicitly focused on elevating its single, iconic brand and extending its reach into high-potential categories like handbags. A third model involves performance-driven niche lifestyle brands that focus on a specific consumer segment and build a brand based on product performance, durability, and authenticity. This creates a deep, loyal customer base that is often less price-sensitive, with authenticity providing a strong moat against fashion-driven competitors. YETI embodies this strategy, having built its brand on high-performance coolers and successfully expanded into drinkware and, more recently, bags and equipment, all while maintaining its rugged, performance-oriented identity. Ultimately, the key competitive battlegrounds in the Bags & Luggage industry revolve around brand relevance, particularly with younger consumers, supply chain resilience in the face of geopolitical shifts, and digital prowess to capture the growing online market. ## Financial Performance ### Revenue Revenue performance in the Bags & Luggage industry is sharply bifurcating, reflecting the polarized consumer environment. Growth rates span a wide range, from +17% year-over-year to -22% year-over-year across the peer group. This divergence is a direct result of the macroeconomic headwinds, where companies with strong brand momentum and a clear value proposition are capturing consumer spending, while those without are experiencing significant declines. The ability to resonate with consumers and offer compelling products is the key driver of top-line divergence. Ralph Lauren's +17% growth in Q2 FY26 exemplifies the success of a brand elevation strategy that connects with today's consumer. In contrast, Capri Holdings' -2.5% decline in Q2 FY26, coupled with an operating loss, shows the impact of softening demand on brands undergoing a strategic reset. {{chart_0}} ### Profitability Gross margins across the industry range from the high 30s to over 75%, but are under direct pressure from tariffs, while operating margins are diverging based on brand strength and cost control. The primary driver of gross margin pressure is tariffs, with companies like YETI seeing a direct 320 basis point adverse impact on its gross margin in Q3 2025 due to tariff costs. However, companies with superior pricing power and brand desirability can offset these costs and maintain high margins. Tapestry's 76.1% gross margin in Q3 FY25 demonstrates exceptional pricing power that can absorb cost pressures. {{chart_1}} Operating margin divergence is then a function of sales deleverage for struggling firms versus the cost discipline of stronger players. {{chart_2}} ### Capital Allocation Capital allocation strategies in the Bags & Luggage industry demonstrate a dual focus on returning capital to shareholders from a position of strength and aggressively fortifying the balance sheet in the face of risk. Confident companies are signaling strength and value through large buyback programs. Tapestry's new $3 billion share repurchase program exemplifies this confidence in future cash flow and commitment to shareholder returns. Simultaneously, the uncertain environment is prompting others to prioritize debt reduction, often funded by divesting non-core assets, to increase financial flexibility. V.F. Corporation's strategy of using divestiture proceeds to reduce net debt by $1.4 billion year-over-year highlights this focus on balance sheet resilience. ### Balance Sheet The balance sheet health of companies in the Bags & Luggage industry is mixed, with a clear divide between healthy and highly stressed companies. While many well-managed companies with strong cash flow maintain solid balance sheets, others face significant liquidity concerns. Companies with high debt loads and operational issues are seeing their liquidity strained by the combination of macroeconomic weakness and cost inflation, pushing them toward financial distress. Funko's situation, with its need for debt covenant waivers and questions about its going-concern status, serves as a stark warning of the risks in the current environment. {{chart_3}}