Coach is buying rival Kate Spade, trying to appeal to Millennials
Luxury handbag maker Coach is buying rival Kate Spade, a brand known for its playful designs and colorful patterns, for $2.4 billion in cash, the two companies announced on Monday.
The deal aims to bring together two New York-based brands that have competed in recent years to win over Millennials and build a global presence, The Washington Post reports.
“This deal gives Coach a real toehold into the millennial market,” said Ed Yruma, a retail analyst at KeyBanc Capital Markets.
“Kate Spade can substantially expand in China and Japan — there are so many new opportunities for revenue — and Coach is in a great position to take that on. The fact that Coach has transformed itself before gives it credibility to do it again.” said Oliver Chen, an analyst at Cowen Group.
loading...
At Kate Spade, 60 percent of sales come from Millennials.
“We believe our extensive experience in opening and operating specialty retail stores can unlock Kate Spade’s largely untapped global growth potential, notably in Asia and Europe.” said Victor Luis, chief executive of Coach.
This is what millennials should be doing with their money
Among his first moves would be to cut back on online flash sales and deep discounts on Kate Spade goods.
“These channels are profitable and can drive growth,” he said, warning that they can lead to brand deterioration over time.
On Monday, for example, Kate Spade’s website was promoting half-priced cross-body satchels for $149 (“today only!”). Another bag, the Cobble Hill Adrien, was discounted 60 percent, from $428 to $171.
“There’s been a vicious cycle of overproducing, then discounting prices and hurting your own brand. It will be painful to dial this back — surgical, even — but it needs to be done if Kate Spade is going to become a lean, efficient brand.” said Milton Pedraza, founder of the Luxury Institute, a New York-based research firm.
loading...
Loading...