Coach, the American maker of high-end accessories, said on Monday that it would buy the rival fashion house Kate Spade in a $2.4 billion deal, the latest in a series of acquisitions aimed at building an accessible luxury group.
The deal confirms months of speculation on Wall Street, with Coach — once a leading light in American retail but which has struggled in recent years against heightened competition, its own discounting of products and a bloated store network — adding a brand known for its bright, girlie aesthetic.
Coach said that it was offering $18.50 per share in cash for Kate Spade, a premium of 9 percent on the closing price on Friday.
“The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multibrand organization,” the Coach chief executive, Victor Luis, said in a statement on Monday.
“We believe Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential,” he added.
Coach said it expected to generate approximately $50 million in savings from the deal within three years.
The company pioneered the sale of luxury handbags at relatively affordable prices, but its bottom line suffered in recent years. Since 2013, it has been engaged in an ambitious turnaround plan, led by Mr. Luis.
In 2014, he hired a new creative director, Stuart Vevers, who transformed the brand into a celebration of cool — a Route 66-inspired strain of Americana intended to appeal to a new generation of millennials. (A coming handbag collaboration with the pop star and actress Selena Gomez also doesn’t hurt.)
Mr. Luis also closed or renovated underperforming stores, re-examined Coach’s pricing strategy and began a crusade to persuade customers to once again pay full price for its wares.
He has also made it clear that Coach has ambitions of building a multibrand luxury conglomerate, in the vein of European groups such as LVMH Moët Hennessy Louis Vuitton and Kering.
Coach bought the American footwear brand Stuart Weitzman in 2015. Analysts have speculated whether Coach could buy Burberry, Britain’s biggest luxury brand by sales. And just this month, Coach was tipped as the favorite to buy Jimmy Choo after the British accessories label was put up for sale just three years after it was listed on the London stock market.
Last week, Coach reported better-than-expected earnings for its third quarter, hinting that its strategy was starting to pay off.
The latest deal came after analysts at HSBC wrote in a note to clients last week that Coach would be well suited to make acquisitions.
“While M&A is not often seen positively by equity markets in luxury, we believe that for Coach it is different,” the analysts wrote. Coach would benefit from making deals, they said, because it would reduce dependency on just one brand and lower the company’s dependency on its own-brand stores.
This is not the first time Coach has tried to expand its profile and balance sheet via separate brands.
In 2009, after considering other acquisitions, Coach decided to create a brand from scratch and formed Reed Krakoff, a high-luxury brand with a minimalist architectural aesthetic founded by, and named for, Coach’s executive creative director at the time.
Though it received critical praise, the venture proved more costly than Coach had anticipated, and in 2013, it sold the company to a group of investors and Mr. Krakoff, who left Coach to concentrate on his own brand. But they struggled with the long profitability horizon of luxury goods, and in 2015, Reed Krakoff suspended trading.
The moral of that story, at least for Mr. Luis, seems to be to focus on the accessible luxury market.
By: Elizabeth Paton and Vanessa Friedman (New York Times).
Photo: Today Every.
Review: Emerging Market Formulations & Research Unit, Flagship Records.