Coach Inc. has reportedly agreed to acquire rival company Kate Spade & Co. The sum for which the deal will be signed is $2.4 billion. With this move, the handbag and accessories manufacturer wants to get more actual and align itself to the taste of the young population. Especially because right now, the handbag market has a slower growth. One of the reasons why sales of handbags have slowed down is that women are now preferring much smaller and less expensive purses. Also, the discount offers which are omnipresent now both in physical stores and online, have put a great pressure on profits.
A profitable move
If all goes well, this acquisition deal is going to combine the two huge United States companies. It will create a company which has about 1,300 retail stores and outlets all over the world. Also, a company with $5.9 billion in sales, each year. Coach Chief Executive Victor Luis announced on Monday that the two companies have a number of common customers. Especially after Coach has tried to make some changes in its products recently.
So, Coach has decided to buy Kate Spade mainly because of the latter’s appeal to younger people. According to what Louis has said, Kate Spade is the brand with the highest level of appeal to young shoppers in Coach’s competitive set. According to an analyst, millennials are about two-thirds of Kate Spade’s customers.
Handbag market going down
Young people are now hoping that Kate Spade will not change its style and products after this acquisition deal. It is worth noting that the handbag market has decreased to about 2 per cent annual growth. This is a lot, especially when compared to six years ago, when the annual growth was of about 15 per cent. Also, analysts are saying that there is a saturation of the market, especially in North America. Meanwhile, Victor Luis still thinks that leather goods and handbags are well ahead of other retail products.
Both companies have their base in New York and both have faced a challenging retail environment. For Coach, things started moving better after the company gave up on some department stores. It also closed a third of its stores in North America and slowed down on promotions.
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