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Coach announced this morning that it has acquired Kate Spade for $2.4 billion, ending months of speculation that the latter was looking for a buyer. As happens when a company comes under new ownership, fans of the the quirky, girly handbag brand expressed concern that Coach would meddle with everything they love about it. Some threatened to stop shopping Kate Spade altogether.
Before anyone had a chance to voice their displeasure, Coach CEO Victor Luis noted that Kate Spade will remain an independent brand. “This isn’t about bringing Kate Spade into Coach stores,” he said on a webcast this morning.
But changes are coming for Kate Spade, which saw its revenue grow over 11 percent to $1.38 billion last year. First of all, you can expect to see less of it in department stores and online flash sales. Luis believes that Kate Spade has become “too dependent” on these channels, which subject brands to heavy discounting. Sales are obviously great for shoppers and they’re good for growing a company’s revenue in the short-term, but they can eat away at its image over time.
What you will see is Kate Spade increasing its presence in Europe and Asia in the coming years. Under Coach’s guidance, international growth will be a focus for Kate Spade, and those regions are at the top of its list.
At the end of the day, this deal is about Luis’s goal of turning Coach into America’s leading “modern luxury” conglomerate.
Three years ago, Coach started rehabbing its own image, which, as with Kate Spade now, involved retreating from discount-happy retail partnerships. Coach pulled out all the stops, going high-fashion, overhauling its stores, and hiring the hottest young celebrities to sell and sometimes design its goods (Selena Gomez, Chloë Grace Moretz, et al). In 2015, it began building out its portfolio with the purchase of the footwear brand Stuart Weitzman. Now Coach has Kate Spade, which Luis hopes will bring in an entirely new customer base, and a youthful one: As he points out, 60 percent of Kate Spade shoppers are millennials.
Luis is telling investors that he sees a market worth roughly $80 billion available to Coach, the multi-brand organization: Handbags and accessories are a $42 billion opportunity, footwear presents $28 billion, and outerwear is another $11 billion. To get there, you can bet Coach is going to need to snap up some more beloved brands.