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The fashion industry is buzzing with recent news of luxury brand Coach acquiring its fellow middle-market fashion house, Kate Spade. The designer brands have consistently fought for market share in the accessible luxury market, often sharing similar price points and consumer demographics. The $2.4 billion sale has everyone wondering what’s next for the luxury brands, specifically how the strategic move will affect the market value and consumer reception of each.
The deal comes after a downturn in Coach sales, an unfortunate but inevitable byproduct of the ubiquity of the brand and its bargain-hunting consumers. In recent years, frequent discounts and heavy promotions had devalued the brand, and Coach had struggled to relate to the millennial marketplace the way that colorful, lighthearted Kate Spade could. With recent studies suggesting that millennials found the brand to be “boring” and “unoriginal,” Coach experimented with expanding its line overseas and catering to a younger, trendier image in hopes of remaining a top contender for middle-market shoppers. So far, it seems to be working.
In an interview with NY Times, analysts of the brand note that while mergers and acquisitions are often seen in the fashion industry as a cry for help, the move spells out a sizable payoff for Coach. The deal signifies a strategic and financially-smart move that is set to lift the brand out of dependency on one brand and expand its focus past one-brand stores. New opportunities for revenue and growth for the brand are in store as Coach looks to tap into the millennial market and open new stores. In turn, Kate Spade will get a bit of a facelift as well, using Coach’s widespread resources and distribution channels to grow into a global brand. In short, the agreement is believed to be a win-win for all involved.
The sale won’t mean a complete overhaul for both fashion houses, however. According to executives of Coach, Kate Spade will remain an independent brand, maintaining its own design and merchandising teams, and carrying on its existing marketing and sales efforts. This is comforting news for those who fear the smaller brand’s unique and playful style might be compromised as a result of the acquisition. (Don’t worry, the same Kate Spade we know and love will prevail!)
An interesting facet of the deal is that the face behind the brand, Kate Spade herself, will not be receiving any earnings from the sale. That’s because the brand had been bought and sold to various other retailers during its lifetime, creating a series of mergers, acquisitions, and rebranding that left Kate with no remaining stake in the company. In 2016, Kate left the brand to focus on her pursuits of launching another fashion brand, called “Frances Valentine.” It had been rumored that the brand had recently been looking for a suitable buyer to take Kate Spade to a more global scale, with many speculating it was looking towards Jimmy Choo as a possible strategic partner.
The acquisition of Kate Spade by Coach hints at a larger trend in the fashion industry that we might actually be seeing more of—the merging of two complementary brands into one “super-fashion house.” How exactly will this trend affect the luxury handbag market? Only time will tell.