How Coach and Prada are luring Asian consumers with coffee and cakes

A corduroy Ralph Lauren letter jacket at the brand’s store in Singapore retails for around $900 Singapore dollars ($693).

But a vanilla latte in its cafe? A comparative steal at SG$9.

From Ralph Lauren to Coach, Louis Vuitton, Dior and Prada, clothing and luxury brands are opening stores in Asia to connect with consumers who are increasingly prioritizing experiences over tangible purchases.

This is especially true of Gen Zs, Coach CEO Todd Kahn told “Squawk Box Asia” Monday.

“Gen Z, across the globe, really focus on self-expression,” he said. “The cafes [are] really about extending that self-expression, that idea of community.”

Many Gen Zs are happy to share that “self-expression” online, resulting in free word-of-mouth advertising for concepts like Coach’s “chilli crab” soft serve ice cream, that comes topped with a branded mantou, or fried bun, at its new cafe in Resorts World Sentosa.

Sunglasses and keychains may have been high-end fashion’s gateway purchases of the past. Today, new consumers can get a taste of luxury for less — with first handbag purchases made of cake, rather than hand-stitched leather.

Coach’s foray into food started in Asia, said Kahn, where the company experimented with different food and beverages concepts. The brand is set to open a Coach-branded steakhouse at Singapore’s Jewel Changi Airport in October.

Ultimately, company data showed coffee shops are “probably the best format for us,” he said.

Coach cafes in areas of high foot traffic are profitable on their own, he said. Moreover, they sell more merchandise, often because shoppers’ companions have a place to rest and relax, allowing shoppers more time to linger, he said.

“Where we have a coffee shop, we’ve seen somewhere between 15% and up to 35% better results in the core shop,” he said.

Coach has more than 980 stores globally, and its march into “experiential retail” may result in more than 100 coffee shops opening around the world in the next four years, he said.

Profits in the luxury industry nearly tripled from 2019 to 2024, according to McKinsey & Company’s The State of Luxury report published in January. However, much of this growth — around 80% — was from price increases, not rising demand, it said.

Now luxury goods companies’ futures are less certain, with sales dipping 2% in 2024, resulting in the industry’s first real-term slowdown in 15 years, excluding the pandemic, according to management consulting firm Bain & Company.

“Traditional European luxury has gone up 10x from 15 or 20 years ago,” said Coach’s Kahn.

“I don’t feel good about having to tell somebody you should save four months of salary to buy a handbag,” he said “The bulk of our product sells between $300 and $500, and that for a young person is very much attainable.”

Still, said Kahn, Coach’s strategy isn’t all about capturing the attention of Gen Z.

“Soon, we’ll be talking about Gen Alpha,” he said.

—CNBC’s Kaela Ling contributed to this report.