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Published: Thu, May 11, 2017
Economy | By Melissa Porter

Coach's bling fling, will spend $2.4B on Kate Spade

Coach's bling fling, will spend $2.4B on Kate Spade

This photo shows a Coach brand logo on a leather wallet in Philadelphia, Monday, May 8, 2017.

Kate Spade CEO Craig A Leavitt said that following a review of its strategic options, the deal with Coach would "maximize value for our shareholders and positions Kate Spade for long-term success".

American handbag maker Coach has agreed to acquire its rival fashion design house, Kate Spade & Company for $2.4bn to create a major New York-based luxury lifestyle firm. It grew quickly and was picked up by upmarket USA stores such as Saks Fifth Avenue and Neiman Marcus. "We were especially excited in our due diligence to find the strength which the Kate Spade brand has with millennial consumers".

Kate Spade, which soared during the recent handbag boom and past year had revenues of $1.38 billion, came under pressure from activist hedge fund Caerus Investors last autumn as its profit margins were well below those of its rivals, including Coach.

The move comes as Coach has been reducing its own retail footprint in North America, where the company closed 30 retail stores in the fiscal year ended July 2. "[It's] buying a status".

He also said that the planned acquisition is an important step in Coach's evolution as a "customer-focused, multi-brand organization". "The combination enhances our positon in the attractive global premium handbag and accessories, footwear and outerwear categories".

Earlier this month, Coach is reportedly mulling a possible acquisition of British luxury shoe manufacturer Jimmy Choo.

Founded in 1941, Coach is a leading NY design house of modern luxury accessories and lifestyle brands. Schulman officially begins his job on June 5.

The acquisition will help Coach generate $50 million in annual savings by combining Kate's inventory management and supply chains. Coach's history and heritage, multi-channel, worldwide distribution model, and seasoned leadership team uniquely position it to drive long-term sustainable growth for Kate Spade.

Kate Spade, an upscale retailer, will be kept an independent brand, reported USA Today. In the past couple of years, around 80 percent of its revenue was made from domestic markets, analysts said.

In recent years, both Coach and Kate Spade have set their sights on sales in China.

Kate Spade's shares have risen 17 percent since December 27, a day before reports emerged that the company was looking to sell itself. Coach shares were unchanged from their Friday closing price of $42.66.

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