Coach aiming for younger customers with proposed Kate Spade purchase
Kateꩵ Spade is the trophy wife Coach thinks it ne൲eds to stay young and hip.
The proposed $2.4 bil🌜lion marriage between the two retailers brings together an iconic 75-year-old brand that attracts older customers with a 24-year-old brand making whimsical, colorful bag🌜s in the shapes of cars and cactuses, as well as apparel.
Both are fighting for cust🙈omers in an incredibly shrinking US handbag market, according to Customer Growth Partners, which says the market has shriveled to 2 percent annual growth from the must-have days of 15 percent in 2010, when Kate Spade was a rising darling in handbags.
But the union between the two New York reta🦋ilers creates a luxury accessories powerhouse that also includes women’s luxury footwear company, Stuart Weitzman. The union could create a luxe concentration that does n🅠ot yet exist in the US, say industry experts.
“Coach will be a force to be reckoned with,” said retail consultant Gabriella Santaniello of A Line Part⛎ners.
Wall Street seemed to agree.💙 🐷Kate Spade shares closed up 8.3 percent, at $18.38, on Monday, with Coach’s shares rising 4.8 percent to close at $44.71.
Coach’s $18.50-per-share offer in ca𝔍sh represents a premium of 9 percent to Kate Spade’s Friday close and a 27.5 percent premium to the closing price on Dec. 27, 2016, the day before media speculation broke about Kate Spade putting itself up for sale.
Activist hedgie Caerus Investors in November began agitating for Kate Spade t꧋o attract a buyer that could help the brand expand in the US and overseas.
The deal is eꦛxpected to close in the third quarter of 2017 and generate $50 million in cost savings within three years of closing.
For Coach, Kate Spade represents the youthful customer it has turned away 🔴from over the past several years during its turnaround, when it raised prices on its leather bags by up to 30 percent and put the brakes on promotional pricing.
“Today marks a pivotal moment in our three-year strategy,” said Coach Chief Executive Victor Luis during an inv♉estor call on Monday. “We set out to transform from a specialty retailer to a true house of fashion.”
Co♋ach now sells shoes via Stuart Weitzman, which it acquired in 2015, and it will soon be in the apparel business with Kate Spade.
“We know Kate Spade is a strong brand — fu🦋n, feminine — and it’s attracting a growing share of🔯 the millennial consumer.”
Approximately, 60 percent of Kate Spade’s customers are millennials, Luis said, “and th꧒at’s leading in our compeඣtitive set in the US.” But he also pointed out that Kate Spade has become too dependent on “online flash sales and on wholesale channels.”
Kate Spade hit the skid𒐪s this year when it reported that 💧sales decreased $3 million, or 1 percent, in the first quarter ended April 1, compared to the first quarter of 2016.
“Kate had ღalways been the handbag darling even when everyone else was fading,” said Wunderlich analyst Eric Beder. “But things caught up to them too. ”