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Designer fashion accessories seller Coach is acquiring it’s competition Kate Spade in a $2.4-billion deal, according to a recent announcement.
The combination of Coach, Inc. and Kate Spade & Company aims to create a leading luxury lifestyle company with a more diverse multi-brand portfolio supported by significant expertise in handbag design, merchandising, supply chain and retail operations as well as solid financial acumen.
Coach’s history and heritage, multi-channel, international distribution model, and seasoned leadership team uniquely position it to drive long-term sustainable growth for Kate Spade. Coach is focused on preserving Kate Spade’s brand independence as well as retaining key talent, ensuring a smooth transition to Coach, Inc.’s ownership, the announcement explained.
Victor Luis, Chief Executive Officer of Coach, Inc. said, “Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation. In addition, we believe Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential. We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth.”
DIVERGE talked to Deb Gabor, brand Strategist and CEO of Sol Marketing, a brand strategy consultancy, to share her thoughts on the acquisition.
Why was Coach buying Kate Spade so discreet?
Coach’s CEO has said that he doesn’t want consumers to know that Coach is buying Kate Spade. I think that he probably meant that he doesn’t care that consumers know, because the combination of brands will be irrelevant to them. While on the surface both brands seem similar in that they are both accessory brands and that they seem to attract a similar demographic (highly sought-after millennials), the two brands – in their affect, their positioning, their design, their attitude – are vastly different. Coach CEO Victor Luis has pointed out that there’s only a 10 percent overlap in the two brands’ customers. The Kate Spade brand is youthful, playful, lighthearted, and modern, while Coach is a legacy brand known as America’s “house of leather.” If you believe that the best brands in the world are the ones that become part of their customer’s self-concept, then you realize that the two brands tell completely different stories about their users.
How will this help/harm the brand?
I feel that this is actually a brilliant move to bring the two brands under the same corporate management roof without combining them. The Kate Spade brand stands to benefit from Coach’s experience and point of view on protecting the brand (in a bold move earlier this year, Coach announced they’d be pulling back on selling their wares in department stores and participating in promotional discounting, and Coach CEO Luis has alluded to a similar approach for Kate Spade). Both companies may experience efficiencies in their joint supply chains and operations.
Why do two well-established brands need to be careful about this?
Coach, as the newly emerging corporate brand housing not only Coach’s own line, but now also Kate Spade and Stuart Weitzman (acquired in 2015), is building a reputation as “a leading New York design house of modern luxury accessories and lifestyle brands.” They appear to be very thoughtful and deliberate about the brands they bring into the fold – ensuring minimal brand identity, category, and audience overlap, which will enable them to have brands that address the needs of multiple segments of the market with little complexity. Additionally, by joining brand operations together on the back-end in functions customers can’t see, they may also be able to ensure increased profitability for both brands.
Will the two merge?
I don’t see the brands merging; their CEO has said as much. This strategy is pretty brilliant. Putting these two brands together signals that Coach is looking to become like one of Europe’s luxury giants. They are expanding beyond Coach’s traditional core to add customers. They have a new designer, new spokespeople, new products, and now higher prices.
Why is this acquisition a good/bad idea?
The retail industry is changing rapidly, and it looks like a bloodbath with lots of retail bankruptcies in just the last year alone. In a changing environment, retail brands are making a land-grab in the categories and segments in which people are actually spending money. Look at your local mall, and you’ll see that there’s way too much retail space available today, but people are still shopping and buying. I’ve seen reports that handbag and accessory sales are up nearly 20 percent. Coach shows that they have a good understanding of who’s buying and are putting together a house of brands that has an offering to each of those buying segments.
