Executive Briefings

Coach's Kate Spade Deal Is Next Step in Quest for Fatter Margins

Coach Inc.'s $2.4bn acquisition of rival Kate Spade & Co. is part of its broader push for fatter profit margins, even if that means settling for lower sales.

As it prepares to take over the handbag maker and revamp its supply chain, Coach indicated that it will pull Kate Spade merchandise from some retailers and so-called flash-sale sites, echoing a strategy it's already adopted for its own brand of luxury goods.

“Near term, it’s definitely going to be painful,” said Brian Yarbrough, an analyst at Edward Jones & Co. “The good thing is, Coach has been through this before and shown they can be successful.”

Heavy discounting by wholesale customers has hurt the cachet of brands like Coach and Kate Spade, which sell mostly through their own stores and online. To fight back, they’re trying to move fewer products through discounters like T.J. Maxx and department stores, which have been slashing prices on luxury handbags to cope with slower mall traffic.

Coach said it is buying Kate Spade as part of its strategy to build a multibrand lifestyle company from New York, where both companies are based. Known for its whimsical handbag designs, Kate Spade has been successful at luring millennials, who make up 60 percent of its customers.

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As it prepares to take over the handbag maker and revamp its supply chain, Coach indicated that it will pull Kate Spade merchandise from some retailers and so-called flash-sale sites, echoing a strategy it's already adopted for its own brand of luxury goods.

“Near term, it’s definitely going to be painful,” said Brian Yarbrough, an analyst at Edward Jones & Co. “The good thing is, Coach has been through this before and shown they can be successful.”

Heavy discounting by wholesale customers has hurt the cachet of brands like Coach and Kate Spade, which sell mostly through their own stores and online. To fight back, they’re trying to move fewer products through discounters like T.J. Maxx and department stores, which have been slashing prices on luxury handbags to cope with slower mall traffic.

Coach said it is buying Kate Spade as part of its strategy to build a multibrand lifestyle company from New York, where both companies are based. Known for its whimsical handbag designs, Kate Spade has been successful at luring millennials, who make up 60 percent of its customers.

Read Full Article