How Coach and Prada are captivating Asian consumers with coffee and cake

A Ralph Lauren letter jacket made of corduroy sells for around S$900 (approximately $693) at a Ralph Lauren store in Singapore.

But what about the cafe’s vanilla latte? It’s a bargain compared to S$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 increasingly value experiences over tangible purchases.

This is especially true for Gen Z, Coach CEO Todd Kahn said on “Squawk Box Asia” on Monday.

“Gen Zers around the world are serious about self-expression,” he says. “The cafe is really about self-expression, expanding the concept of community.”

Many Gen Zers are happy to share their “self-expression” online, leading to free word-of-mouth advertising for concepts like Coach’s Chili Crab soft-serve ice cream topped with the brand’s mantou (fried bread) at Resorts World Sentosa’s new cafe.

Sunglasses and keychains may have once been the gateway to purchasing high-end fashion. Today, new consumers can experience luxury for less by purchasing their first handbags made of cake rather than hand-stitched leather.

Khan said Coach’s foray into food began in Asia, where the company experimented with different food and beverage concepts. The brand plans to open a Coach-branded steakhouse at Singapore’s Jewel Changi Airport in October.

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

He said the Coach Café, which is located in a high-traffic area, is profitable in its own right. Additionally, more items are sold because there is often a place for the shopper’s companion to rest and relax, allowing the shopper to spend more time, he said.

“When we run coffee shops, we’re seeing anywhere from 15% to up to 35% better results in our core stores,” he said.

Coach has more than 980 stores worldwide, and its commitment to “experiential retail” could lead to more than 100 coffee shops opening around the world over the next four years, he said.

Luxury industry profits nearly tripled from 2019 to 2024, according to McKinsey & Company’s The State of Luxury report published in January. However, much of this growth (approximately 80%) is due to price increases rather than increased demand, the company said.

The outlook for luxury goods companies is currently uncertain, with sales expected to decline 2% in 2024, the industry’s first real slowdown outside of the pandemic, according to management consulting firm Bain & Company.

“Traditional European luxury goods are 10 times more expensive than they were 15 to 20 years ago,” Coach’s Kahn said.

“I feel bad having to tell someone they should save four months of their paycheck to buy a handbag. Most of our products sell for between $300 and $500, which is well within reach for young people,” he said.

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

“Soon we will be talking about generation alpha,” he said.

—CNBC’s Kaela Ling contributed to this report.