Modern luxury brand Coach has announced an agreement to acquire Kate Spade & Company for $2.4 billion.
Coach CEO Victor Luis says that the acquisition will differentiate the company’s brand positioning, especially with millennials. In return, Coach’s experience in opening and operating specialty retail stores will help Kate Spade’s untapped global growth potential.
“The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multi-brand organization,” Luis said. “The combination enhances our position in the attractive global premium handbag and accessories, footwear and outerwear categories, bringing product, brand positioning and customer diversification to the portfolio, and establishing scale in key functions with the resources to invest in talent and innovation. In addition, we believe the Kate Spade brand will benefit from our best-in-class supply chain and strong corporate infrastructure.”
According to NPD Group’s Checkout Tracking, which analyzes consumer purchases at the receipt level, a look at cross-purchasing behavior among buyers shows that there are few consumers who are both Coach and Kate Spade buyers. Of shoppers who bought at least one Coach item online in the 12 months ending in March, just 15% of them also bought a Kate Spade item. Therefore, the combination of the new entities has potential to expand both brands’ customer bases significantly.
Greg Portell, lead partner in A.T. Kearney’s retail practice, said that the deal was not surprising as the luxury world is ripe for consolidation. He agreed that much of the deal would be positive on both sides.
“Kate Spade was able to spark gains in shareholder value without needing to solve the harder issues facing the business. And Coach picks up a recognized brand that balances scale with the potential for more growth. Their stated goal for cost synergies indicates conservative integration expectations. We would expect much greater costs savings opportunities given their business lines,” Portell said.
However, he does believe the concept of brand synergy from this deal is overstated. Coach’s plan is to build a house of brands, but the expectation that it will leverage consumers from its acquired brand is “flawed.”
“To be successful, brands need to build their identities and deepen connections with their core consumers. Any plan that tries to blur brands or consumer groups would be a waste of the acquisition. The synergy comes from the ability to attract talent and build successful marketing and innovation platforms,” Portell added.