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The winners and losers in a Coach-Kate Spade acquisition

March 29, 2017

By Hilary Milnes

With reports swirling that Coach’s acquisition of Kate Spade is imminent, what would a merger of two of the leading American handbag brands look like?

“Coach has viability again,” said Jessica Ramirez, retail analyst at boutique firm Jane Halli & Associates. “Now, they’re targeting millennials and looking to further elevate the brand. For Kate Spade, Coach could do for it what they did for Stuart Weitzman.”

Coach, which acquired footwear brand Stuart Weitzman for $574 million in 2015, has been undergoing a restructuring since annual sales dipped as low as $4.1 billion in 2015, down from $5.1 billion in 2013. Now that sales have started to turn around, up 7 percent over last year, the company is exploring the Kate Spade acquisition as an avenue for accelerating growth.

Kate Spade & Company, meanwhile, announced with its 2016 annual results in early February that it was reviewing strategic alternatives, including exploring potential buyers. Last year, Kate Spade & Company pushed brand growth both by category, when it introduced 14 new products mostly in the home goods industry, and by geography, citing big opportunity for expansion in Japan and Europe. However, its growth has been bogged down by the closing of trendy line Saturday and a rolling back of Jack Spade brick and mortar.

Final bids for Kate Spade & Company were due on Monday. While both Coach and Kate Spade declined to comment on the speculation, here’s a rundown on the anticipated winners and losers of a potential Kate Spade and Coach merger.

Winner: Direct-to-consumer
During February’s earnings call with investors, Kate Spade & Company CEO Craig Leavitt talked up the company’s shift to a direct-to-consumer business model.

“Our direct-to-consumer and channel-agnostic approach has helped grow business faster than peers,” Leavitt said. “E-commerce is our fastest growing channel.”

Over the past year, both Kate Spade and Coach have pulled products from department store partners that were continuously marking down item prices and harming the brands’ reputations as contemporary luxury. Coach opened a flagship store in New York, offering a personalization station and in-house tailoring, to reclaim its brand appearance. Kate Spade, meanwhile, has reported e-commerce growth, but slowed down brick-and-mortar sales. From its fourth quarter earnings report, same-store sales at Kate Spade fell 1.5 percent, but overall direct-to-consumer sales were up 9 percent when accounting for e-commerce.

While shifting away from wholesale and re-emphasizing the core brand is appealing for brands who have grown tired of department store promotions, operating a direct-to-consumer business solo isn’t easy.

“It’s become more complex for small brands to run a business,” said Rony Zeidan, CEO and founder of the agency RO NY. “You see brands shifting from wholesale to direct to consumer, which puts them in control, but that comes with budget. Not everyone can pull that off.”

Bringing Kate Spade under the Coach umbrella would fortify the direct-to-consumer model for both brands.

Loser: Michael Kors
As soon as it became clear that Kate Spade would be up for sale in November (when New York hedge fund Caerus Ventures, an investor in …read more

Source:: Digiday

      

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