Luxury retailers are pumping money into outlet operations to boost business by attracting more low-end shoppers. This strategy could drive gains for certain stocks in this space. Companies like Tapestry’s Coach and Ralph Lauren have elevated their discount stores, turning them from dumping grounds for last season’s merchandise to upscale destinations for aspiring shoppers. Motivated customers are those who significantly exceed their budget or save money to purchase premium products. “Ten years ago, outlets were thought of as an inventory clearance mechanism,” Kinshuk Jelas, a professor at Columbia Business School, told CNBC. “It’s a little different now…outlet is kind of an alternative channel for value-conscious consumers who want to spend money to get some kind of premium brand.” As demand for luxury goods continues to decline, retailers’ two-tier strategy is emerging. According to a report by consulting firm Bain, the luxury goods market will lose about 70 million customers from 2022 onwards, falling to about 330 million by the end of 2025. Revenue for the year fell by about 2% to just over $400 billion. That downward trend is reflected in the sector and its companies. The U.S. Global Investors Fund’s Global Luxury Goods Fund (USLUX), which includes companies such as LVMH, Ferrari, Hermès and Christian Dior, is down about 7% since the beginning of the year, according to FactSet. During this time, the S&P 500 rose more than 8%. “The ultra-high-net-worth individuals actually make up a small portion of their income, even in luxury brands,” Bernstein analyst Aneesha Sherman told CNBC. “Most of the revenue comes from wealthy, aspiring consumers, and for them it’s a splurge,” said Columbia University’s Jealous. “In the past, people thought if you had a young professional or a student, you could sell something at an outlet and have them replace it with something like a regular brand.” But “it’s no longer a question of moving[less affluent consumers]up into the higher tiers…This is a stable demographic that will continue to buy from them.” To appeal to those customers, Ralph Lauren & Tapestry now stocks factory-made apparel and accessories alongside select, full-price core products in authorized retailers, offering the highest quality products in regular stores. “Coach and Ralph Lauren have certainly done a good job of really elevating the outlet experience by reducing promotions (and) introducing more full-price products that we know work well in other channels,” Citi analyst Paul LeJues told CNBC. “It’s a way to connect with new customers.” How to ride the trend Coach and Ralph Lauren have already gained some ground by overhauling their outlet experiences, but analysts say their stocks still have room to rise. Wells Fargo & Co.’s Ike Borshaw said in a note to clients on Tuesday that Ralph Lauren “believes there is room for further growth with improved sales quality.” The polo shirt maker’s net sales nearly doubled from fiscal 2021 to more than $8 billion in the fiscal year that ended in March. Analysts on average expect Ralph Lauren’s sales to reach $8.627 billion for the current fiscal year, according to FactSet data. “RL has increased its focus on full-price stores while strengthening its product offerings in outlet and wholesale channels, reducing off-price by 75% since (2018),” Borsjo added. RL YTD Mountain RL Year-to-date, Wells Fargo has given the polo manufacturer an Overweight rating. The bank earlier this week raised its price target on the stock to $425 from $415, suggesting a potential 14% upside from Friday’s closing price. Tapestry is also expected to increase its market share by expanding its customer base. “We would like to note that new customers are coming in at higher (average to retail) levels and at higher spending levels,” Bernstein analyst Sherman said in a note to clients earlier this month, which he said should push the stock higher. Coach, on the other hand, has grown sales by more than 20 percentage points over the past few quarters, “whereas high-end luxury brands are literally not growing or growing in the low single digits,” he told CNBC on Friday. Sherman has an excellent reputation for tapestry. She also has a price target of $180, 26% of Friday’s closing price. Another rising stock, Bernstein’s Sherman, told CNBC that Michael Kors, owned by Capri Holdings Inc., could follow in Coach’s footsteps by leaning into the elevated outlet model, which could send its stock price higher in the near future. “Over the past year (or) year and a half, they’ve changed their strategy,” the analyst said. “They have brought full-price merchandise down to a realistic level and are now upgrading their outlet assortment,” he added. “We’re excited to move forward with the same strategy as we have new product lines coming in the fall, but we haven’t fully begun yet.” 2026 CPRI YTD Mountain CPRI Sherman has a market performance rating on Capri Holdings and a $24 price target on the stock. This represents a 55% increase from Friday’s closing price. Citi’s LeJuet said the bagmaker hasn’t really launched a new strategy yet, but given the similarities between Michael Kors and Coach’s businesses, the competitor’s foray into the luxury outlet model seems poised to succeed. LeJuet rates Tapestry, Ralph Lauren and Capri Holdings as buys. He has a $170 price target for Tapestry, 19% above Friday’s closing price. His $400 target on Ralph Laruen suggests 8% upside potential. His $31 price target for Capri Holdings suggests a 36% decline in Capri Holdings stock since the beginning of the year, representing a 100% upside.
