When luxury goods firm Tapestry – formerly known by its brand name, Coach – decided to splash out $2.4 billion to acquire Kate Spade in 2017, the move was panned by many as not worth the outlay for the potential returns. The deal came only two years after Tapestry had acquired shoe maker Stuart Weitzman at a much lower price tag of $574 million.
Initially the critics were proved right, and share price dropped by 26% over the past year. However, Tapestry’s share price has risen after a positive set of results posted Thursday, which slightly beat analyst expectations.
The idea behind the acquisitions was to grow Tapestry into a global luxury goods house, and despite the initial reception to its Kate Space purchase, the company has firm plans to carry on growing in this way.
Underpinning this strategy is a technology infrastructure that can attract acquisition targets by offering them access to features they wouldn’t be able to develop themselves. This involved managing he IT integration aspect of the mergers, which in turn involved consolidating a lot of disparate systems, according to CIO Michael Braine:
We had eight ERP systems between the three organizations. Some of them were geography based because as business grew in Asia specifically in the past, they spun up their own environment. Some of them were based on lines of business, because they had a different ERP for their wholesale business than they did for the retail business.
Ahead of the Kate Spade acquisition, Stuart Weitzman and Coach were loosely integrated, with a consolidated view on financials, but the two organizations had not been harmonized from an underlying system perspective. As well as the various ERP systems, Coach was running an on-premise version of Ariba used in a limited capacity; Kate Spade had PeopleSoft for HR, and separate homegrown systems for wholesale, retail and different geographies; Stuart Weitzman brought a whole other set of Java-based homegrown applications.
Tapestry had three main goals for overhauling its technology landscape. The first was using the IT platform as a foundation for joining up the business, leading to cost savings associated with licensing and supporting fewer different applications. Braine says:
There were three-plus ways of doing everything from procuring products to managing a promotion to managing price changes on the system. Every process you can think of had a multitude of capabilities so a lot of this was standardizing how the organization was going to run those, both for efficiency and frankly choosing the best practice effectiveness.
Next, Tapestry wanted to create a digital foundation that it could use to build differentiated capabilities:
It's hard to imagine being able to provide any advance to real-time machine learning capability or predictive analytics across all three brands, across all three geographies when they all had a different set of foundational data and a different set of definitions for things. A lot of this was also about creating a foundation that would lend itself to world-class investments to follow.
The last component was making the company attractive to acquisition targets:
If we aspire to acquire more brands, then we need to be in a position to be appealing to them. Part of being appealing to them is having capabilities that they don't have themselves and would not have the resources to have. And then there's also the expectation that we would have a platform that would be able to absorb them. So a scalable platform and a global platform.
The shift in focus to standardising procurement policies across the globe, and an HR system that could manage its new 21,000-strong global workforce led Tapestry to SAP cloud solutions Ariba, SuccessFactors and Concur; three products all chosen by the business rather than the IT team. Braine adds:
All of those cloud solutions have been really business led directly with SAP and integration partners. They were very minimal IT direction and involvement.
Tapestry has now nearly completed the transformation project it first began discussing back in 2014, formally signed off in 2015 and began work on in November 2016. All brands and geographies are now on Ariba, SuccessFactors, Concur, S4 and Finance. The missing component is the non-finance piece of the supply chain for Coach and Stuart Weitzman, which will go live in August; Kate Spade was 100% complete as of February.
But the project that was initially signed off is different to the end result, thanks to the arrival of Kate Spade after work had begun:
We've delivered many more applications, many more systems than were originally envisioned. One critical thing happened - nine months into the program, we acquired Kate Spade. Kate Spade was not part of the original vision and that created an inflection point in the project.
What do we do? Do we finish what was originally the plan and then deal with Kate Spade, which would have meant we weren't finished with this thing until 2022, or do we do something else? And we chose that as an inflection point to incorporate Kate Spade into the project and actually to make a technology change.
The change was switching from SAP’s Fashion Management Solution to S4 Fashion, recalls Blaine:
We chose at that point in time to be the early adopter for SAP. When we made those decisions, we committed to a larger scope but we kept the same timeline. When we are successful in August, that was the date we had originally planned for just the Coach brand and now we will have completed all three in that timeline.
Tapestry managed this by approaching the end date as a concept of time to value rather than as an arbitrary date, he adds:
This whole investment is about producing value. It's about those shared services, it's about future acquisition. And so to delay in quotation marks, to convince ourselves that we needed more time is to delay the benefit of the acquisition and the clock is ticking not only from our customers, but for all stakeholders to deliver value. For every year or every month that we're working on this, we're not working on more differentiating capability or consumer-facing capability. So I think there's a huge opportunity cost to letting these things take longer than they absolutely need to.
Another aid to delivering the project on time was having it treated as a key priority, from board level down.
It's a very clear priority for the organization that has line of sight from the CEO through the three brands and through the functions that for our aspirations as a company, this is a key enabler and therefore it gets treated with the priority that it needs to have. Many other things that are not strategic have been stopped in order to create the bandwidth and the focus that's necessary to be successful. We are properly funded. We're not trying to do this without adequate resources, from both management attention, human capital and adequate funding to get it done.
The firm initially considered Oracle as well as SAP for the project; the latter won out due to its 23-year history with Tapestry; a lower price tag; and the offer of a vertical integrated solution for the fashion industry. Blaine says:
There was a very strong desire to adopt a real industry solution. This integrated solution that SAP had was superior to the one that Oracle was proposing at that time. There was not a credible pure cloud vendor for an organization of our size. Not even SAP’s cloud was credible for us at that time. That would not be true today, but that was definitely true then. So we ended up with a private cloud, it's IBM-hosted on-premise.
Despite the success of the project, there are a couple of areas that Braine wishes could have been done differently. One was automated testing, which would have provided feedback during the course of the project, leading to an ongoing benefit for years to come. And then there’s the perennial headache of data management:
Data is the most important component of these projects that gets overlooked. We should've started cleansing data and making decisions about whether to change data in the legacy systems and what the process was going to be much earlier than we did.
We're like a lot of other organizations there. Making that real enough to affect change occurred late for us.