The rumors from Wall Street are finally confirmed. Coach, which offered $18.50 per share in cash for Kate Spade, bought the brand for a tremendous $2.4 billion. Coach agreed on a premium of 9 percent on the closing price on Friday, because of the millennial consumer base that Kate Spade has. Additionally, Coach is expecting to generate $50 million in savings in the next three years.
Both brands offer high-quality luxury products at relatively affordable prices. Coach’s story started back in 1961 when they were producing only wallets. With time they expanded and started to manufacture classic leather handbags that became the no.1 choice for both business women and full-time moms.
Kate Spade offers sharp, contemporary and at times edgy accessories predominantly worn by a younger consumer base. Lately, the company was trying to go back to their roots and remake themselves as a lifestyle brand. This was the main reason why Coach decided to buy the brand, hoping that the expansion of brands in their portfolio will help them overcome the challenges in the crowded market.
Nowadays people are more oriented towards online shopping and fast-fashion brands such as H&M, Zara, Forever 21 and the like. Additionally, the outlet stores get most of the crowds that department stores had in the past. Coach and Kate Spade have way higher prices compared to fast-fashion brands, but they are still considered as a quality and affordable alternative to the haute couture fashion brands such as Gucci or Louis Vuitton. Coach’s handbags retail for $285 to $3,000 and Kate Spade’s sell for $100 to $500. Both companies offer men’s wear, fragrances, homeware and ready-to-wear fashion.
Coach’s department store revenue has fallen 40% in the last quarter as a result of heavy discounts and fewer shoppers. Additionally, the brand had to close a significant number of their department store locations. With the most recent deal with Kate Spade, Coach is hoping to target the market from all sides.
Coach’s CEO said in a press release that Kate Spade “has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation.”
This February Coach officially made Selena Gomez the new face of the brand. The company’s decision was a bit surprising because their classic designs are predominantly worn by mature customers. It seems that lately Coach is aiming towards much younger costumers than their regular consumer base. Apparently, Kate Spade is the perfect way to reach their new goals.