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Kate Spade to Take a Page From the Coach Playbook

Just one month into ownership of Kate Spade, Coach, Inc. identifies the synergies and opportunities that it says reinforce its decision to bring the brand on board.

During yesterday’s earnings call, the Coach team outlined its initial vision for the Kate Spade brand, and how its three businesses would work together to provide value for shareholders.

In looking at its portfolio, Coach, Inc. CEO Victor Luis highlighted the benefits of having three distinct brands, starting with the company’s consumer reach. With only a 10 percent overlap in the customer basis for each business, Luis said Coach, Stuart Weitzman and Kate Spade each bring something—and someone—new to the table.

“This speaks to our initial views going into this which is we were adding an incremental business given the very unique brand attitude that Kate has, a much stronger leaning into a millennial consumer at 60 percent compared to just over 30 for the Coach brand and a very differentiated brand attitude positioning globally, although nascent in international markets,” Luis said, adding there’s no worry that one brand will cannibalize the other.

Coach says expect to see more Kate Spade stores in the U.S. and abroad as it works to elevate the brand presence and profile. As it compares to the Coach brand, Kate Spade currently operates 178 stores here, while there are about 400 Coach locations. Also, brand awareness only stands at 31 percent for Kate relative to 71 percent for Coach.

Internationally, Coach will be focused on bringing the brand out of its “infancy” in Europe and China, where it only has seven and 33 locations, respectively. Japan represents a more mature market with 88 locations, but even there, brand awareness hovers around 15 percent compared to 51 percent for Coach.

Looking at Kate Spade’s distribution, Luis said the company is “taking a page or two from Coach’s playbook,” as it shores up the brand’s foundation. This will include managing promotional activity, its participation in flash sales and its outlet channel. But Luis said Kate won’t necessitate the same level of overhaul at the department store level as Coach did.

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“One of the most positive surprises—and we knew this from our due diligence prior to the acquisition—is how clean that brand has been and how well it’s been managed from a promotional perspective as it relates to the department store channel,” Luis said. “There’s not much cleaning to do there.”

From a product standpoint, Coach is looking to retain the colorful and playful sophistication Kate Spade is known for, while adding innovation in handbags, accessories, ready-to-wear and tech, leveraging the company’s established supply chain and product development capabilities. For the time being, Coach has no plans to exit any Kate Spade licenses, saying it will evaluate them as they near expiration.

Overall, Coach expects the Kate Spade business to add between $130 to $140 million in operating income in FY 2018, which it says will more than offset the lower profitability from the reduced wholesale distribution and flash sale participation.