Against a backdrop of disruptions in the retail space and shifting consumer priorities, Coach agreed to acquire Kate Spade for $2.4 billion as a consolidation wave is expected to sweep the fashion and luxury industry.
By buying Kate Spade, which recently reported its first comparable sales decline in at least six years, Coach has a number of opportunities. There may be chances to cut costs by combining some of the companies’ back-end functions such as buying and logistics. Meanwhile, Kate Spade will give Coach, which has signed actress Selena Gomez to speak to younger consumers, more access to millennials: A consumer panel survey suggested 62% of Kate Spade’s consumers are millennials, and no more than 10% of both brands’ customers overlap, said Coach CEO Victor Luis on a conference call on Monday.
Kate Spade’s “emotional attributes hit at the high end when it comes to fashion, fun and femininity, whereas Coach’s attributes [are more about] function, quality and leather,” Luis said.
The Kate Spade purchase followed Coach’s 2015 purchase of luxury shoe label Stuart Weitzman, which Luis said has seen double-digit revenue growth through 2017. Coach will keep Kate Spade running independently, as it has done with Stuart Weitzman.
The latest acquisition “marks our evolution as a multi-brand design house,” Luis said. “We look at our positioning as more approachable and inclusive. Our brands are not based on the idea of exclusivity or positioning about country of origin. That positioning has worked incredibly well for both Coach and Stuart Weitzman.”
Coach said its know-how in expanding in international markets and consumer insights analytics also will aid in its planned expansion of Kate Spade in Asia and Europe. As it has done with its own brand as part of its own bid to turn around the brand, Coach also plans to reduce Kate Spade’s online flash sales and outlet promotions.
Luis said while an acquisition the size of Kate Spade isn’t likely in the near future, he sees potential for Coach to make smaller acquisitions.