The seller of designer fashion accessories, Coach, revealed on Monday that it finally bagged Kate Spade, its upscale rival, for $2.4bn.
Coach said that Kate Spade will be allowed to continue as an entirely independent brand. It’ll also keep its own stores. The connection of Kate Spade to Millennials has been appealing to Coach. It appears that Kate Spade has an international growth potential which is one of the reasons why Coach acquired the company. Both Coach and Kate Spade are popular for making high-end trendy handbags, women’s shoes, and apparel.
“It is definitely a strong brand as it has a consistent and clear positioning. It even has leadership in Millennials’ growing share of fashionable, feminine, and fun luxury goods,” said Coach’s CEO, Victor Luis, in an interview.
Although Luis claimed that Kate Spade will be able to have the full autonomy in creating its own designs and marketing decisions, Kate Spade seems to have become dependent on its wholesale distribution and online sales.
Both channels, according to Luis, might befall a brand deterioration at some point in time. Luis said that Coach will ensure that both will be cut back by a certain percentage.
In both companies, investors were happy about the $2.4bn deal. Coach paid $18.50 per share of Kate Spade, which is more than what each stock was worth back in December of last year. This was before the rumors about a possible deal spread. The share of Kate Spade closed up at $18.38. As for the shares of Coach, they closed at $44.71.
Coach said that it is expecting to shed at least $50M in annual costs in 3-years as soon as the deal is completed. This will include the overlapping cost elimination and supply chain optimization. Coach ended 2016 with 204 retail outlets and 228 retail stores. There are 522 Coach locations around the globe, as well as 75 Stuart Weitzman retail stores.
Globally, the Kate Spade brand has 82 outlet stores and 133 specialty stores. Coach said that it got the idea of a global expansion through the opening of specialty stores by Kate Spade. Kate Spade opened at least 50 new locations last year, boosting its overall sales and net income. However, profits per square foot fell last year, underscoring the challenges of the retailer including a lower growth in Asia, an extremely sluggish luxury market, and discouraging currency rates.
While Kate Spade was expanding, Luis said that Coach reduced its retail footprint as the company closed at least 30 retail stores last year.
Craig Leavitt, CEO of Kate Spade, told investors that this deal will ensure that the brand of Kate Spade achieves a much bigger success as it worked hard in creating a distinct and clear brand identity. Kate Spade also has great products and a differentiated storytelling ability.
Luis said that there is a slight possibility that some stores may be closed, especially in markets where both retailers compete. However, it will be very minimal.