Image source:
What's going on?
Luxury retailer Coach is buying rival Kate Spade in a $2.4 billion deal that is intended to help Coach sell goods to the coveted millennial audience!
What does this mean?
Late last year, an investor in Kate Spade made a public plea for Kate Spade to sell itself, saying that its comparably good growth prospects but low profitability would make it an attractive acquisition target (i.e. another company could better manage it). In February, Kate Spade announced that it was formally exploring a sale and, while the sale price that was agreed fell short of some estimates, that process appears to have been completed on Monday.
Why should I care?
For markets: Investors think Kate Spade is a good fit for Coach.
For Coach, the purchase of Kate Spade marks the acceleration of its strategy to become more of a multi-brand luxury company, rather than relying solely on the Coach name. The idea is that, with Coachs expertise, Kate Spade can grow more quickly, particularly outside of the US. Coach should also be able to eliminate some overlapping costs, which would help drive profit growth. Shares of Coach were up 6% following the news on Monday, suggesting that its investors are supportive of the deal.
The bigger picture: Retailers want better access to millennials.
Retailers are struggling with the millennial generation our preference for experiences over stuff is often cited as one of the biggest headwinds for traditional retail (alongside the threat posed by Amazon). Part of Kate Spades appeal for Coach is its popularity with millennials. Its quirky handbags and its minimalist logo apparently resonate with the younger consumer (flashing around pretentious logos has fallen out of fashion!) and Coach is looking to capitalize on that.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
