Coach corrals Kate Spade
Investors cheer as $2.4B deal combines luxury goods sellers
Designer fashion accessories seller Coach said Monday it has bagged upscale rival Kate Spade in a $2.4 billion deal that reflects a luxury goods market grappling with sluggish sales.
Coach said Kate Spade will continue as an independent brand with its own stores. Kate Spade’s connection with Millennials, who represent 60% of its customers, and international growth potential appealed to Coach. Both companies are known for their pricey high-end handbags as well as apparel and women’s shoes.
“It is a strong brand with a clear and consistent positioning, with leadership in the attributes of fashionable, fun and feminine and a growing share of Millennials,” Coach CEO Victor Luis said in a conference call.
Although Luis said Kate Spade would be afforded the autonomy to make its own design and marketing decisions, he said the company had become “too dependent” on online sales and wholesale distribution.
Those channels “can lead to meaningful brand deterioration over time,” and Coach will cut back on both, Luis said.
Investors in both companies cheered the deal. Coach is paying $18.50 per share for Kate Spade, 27.5% more than the stock was worth on Dec. 27, before rumors of a possible deal surfaced. Shares of Kate Spade closed up $1.41, or 8.3%, to $18.38. Coach shares closed up $2.05, or 4.1%, at $44.71.
Coach said it expects to shed $50 million in annual costs within three years after completing the deal. That will include “supply chain optimization” and elimination of overlapping costs, Chief Financial Officer Kevin Wills said.
Coach ended the period with 228 retail stores and 204 outlet stores in North America, 522 Coach locations internationally and 75 Stuart Weitzman stores.