Coach to Acquire Kate Spade for $2.4B

Coach said Monday that it had reached a deal to acquire upscale retailer Kate Spade in a shakeup for the luxury goods industry as it grapples with sluggish sales. Coach said it would pay $2.4 billion for Kate Spade, which it plans to maintain as an independent brand. Coach said it expects to save $50 million annually in "synergies" within three years, which often comes from eliminating overlapping costs.

Total Retail's Take: This acquisition has been in the works for months now, and it became official today. Coach had made it known that it was in the market for luxury lifestyle brands, and Kate Spade fit the bill. Coach will leverage Kate Spade's global footprint — it has 133 specialty stores, 82 outlet stores and 54 stores similar to franchises exclusively in foreign markets — to grow its international business. In the fiscal year ended July 2, Coach closed 30 retail stores in North America. The accessories retailer is betting on international — both its own and Kate Spade's, which will operate as an independent brand — to fuel future growth.

"This segment of the luxury industry is ripe for consolidation," says Greg Portell, lead partner in A.T. Kearney's retail practice. "In that sense, a deal isn’t surprising. Much of the deal is positive for both sides. Kate Spade was able to spark gains in shareholder value without needing to solve the harder issues facing the business. Coach picks up a recognized brand that balances scale with the potential for more growth. Its stated goal for cost synergies indicates conservative integration expectations. We would expect much greater costs savings opportunities given their business lines."