Looking Back At Coach's HistoryThe Coach brand itself has been around since 1941, and, if you were to go back in time to the early-to-mid 2000's, you'd find a Coach bag on the shoulder of reality stars like Paris Hilton and on the arms of high-school girls toting their first luxury bag. But how could the typical teenager afford a Coach bag? Within the answer to this question lies the dilemma that Coach faced: an overflow of their bags into the retail outlets, leading to the massive drop in the brand's popularity by 2009. Rather than retaining value as a luxury brand, the fact that too many bags ended up in retail outlets undermined Coach's effort to make the brand more accessible. How? By creating a pretty stark dissonance between the luxury brand image and the cheap, discounted prices people saw on the racks where Coach bags were stuffed next to each other. Though you can still pick up a Coach bag in retail stores like TJ Maxx, it's unlikely that you'll see the same bag on the shoulder of all your friends– and that's a good thing. Simply put: Coach recovering their brand wasn't and still isn't enough.
Getting Back In The Game With Kate SpadeThough the current discussions between Kate Spade and Coach are garnering a lot of attention, this isn't the first time Coach has had a hand in bringing another brand back from the brink. In 2015, Coach acquired Stuart Weitzman for $574 million– a spend well worth the value as it was intended to expand the reach of both companies while remaining mutually profitable. At the time, it wasn't hard to find critics in disbelief that a Coach and Stuart Weitzman merger would pan out to be a positive move. Because Coach's popularity was still recovering, and Stuart Weitzman was in a state of transition, it seemed impossible for one struggling brand to be able to find success for both of them. Thankfully, the test of time has really shown that Coach's first acquisition was a strategically smart one. So, after a few years of reaping the rewards of acquiring Stuart Weitzman, why is Coach looking to acquire a new brand through the Kate Spade sale?
Coach and Kate Spade: The Perfect Match?Similarly to Stuart Weitzman, Kate Spade isn't necessarily struggling. Summarized perfectly by Racked, Kate Spade was hit by difficult retail markets in 2016 but entered the new year with a 14% increase from their 2015 sales. Kate Spade fills a space in the fashion market that Coach is currently lacking; the cutesy and bright, yet classic, designs of Kate Spade reach consumers that tend to shy away from the mid-2000's memory of Coach's ever-popular, tiny signature canvas bags, reminiscent of the one pictured below. Instead, Kate Spade transcends markets that include upbeat middle-aged women and millennials because of the way the brand embodies simple, bold, and lively fashion that can be worn day and night. Even Kate Spade's customizable "wrap" and "flap" collections gives bag-lovers the option of transforming their look without having to hunt for an entirely new bag. Nevertheless, one can see the connection that led to Coach's interest in Kate Spade when you compare some newer designs, which feature bags covered in floral blossoms and kitschy pins.
Adding Kate Spade to their roster would only boost Coach's reach in markets that they haven't been able to completely break into; these moves could end with Coach successfully diversifying and broadening their customer base through acquisitions like Stuart Weitzman and, potentially, Kate Spade.
How Kate Spade Could Benefit From A Coach BuyoutAlthough the Kate Spade brand is popular, and there haven't been any rumors pointing to bankruptcy like other brands have faced this year, Kate Spade stocks dropped in price significantly last week. If an acquisition were to go through, it's likely that stock prices would recover as a result of investors renewed trust in the brand's future. Due to the scope of Coach's brand, Kate Spade would benefit from the push towards e-commerce that Coach, and the industry as a whole, is moving toward. This business model could really change the way both brands operate, and it lets them avoid possible retail outlet overflow by selling directly to consumers online. This method of selling also allows companies to better control prices and offer customers a direct relationship with the identity of the brand– as well as steering clear of the stresses that physical-stores provide, especially when the fate of malls and department stores is unclear. Only time will tell if this deal will end up going through, or if Kate Spade will join the ranks of Burberry as a company once courted by Coach. One thing is clear regardless, though, and that it's likely that Coach has a plan for further expansion as the years go on. Be sure to check out our final blog in this Coach mini-series, where we'll discuss brands Coach may also be looking to make a deal with in the future. Do you have any guesses who's on our list?
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