Competition has been tough for international brands to sustain in the market due to consumer preferences shifting to cheaper brands and discount strategies applied by the online and local retail store outlets. This pressure to sustain forced Coach Inc. to enter into a merger with Kate spade for an amount of $2.4 billion. Coach Inc and Kate Spade were rivals in the handbags and various accessories making business till now. But due to growing competition, slower growth in the market and consumer shift in preferences they had to merge with their rivals thereby creating a new venture with 1300 retail outlets across the globe and annual sales revenue of $5.9 billion.
Chief Executive of Coach Inc, Victor Luis said that consumers had an overlapping preference among Coach Inc and Kate Spade brands to choose and find it difficult to select one among them. Kate Spade caters to a single segment of young customers where as Coach Inc focuses on all age group ladies and considers them to be their potential customer. However, they agree that there was a mere 10 percent of a group of ladies who would prefer buying both brands. Kate Spade is the preferred choice among the young girls who are in the age group of 18-25 who ideally have reached their adulthood in the 21st century. Due to this they were losing their market share ultimately hampering the sales revenue and profit margins annually.
Merging with Kate Spade is expected to increase the number of customers for their brand and thereby retaining their position in the market. Statistics shows that the annual growth of the bag market is decreasing rapidly for last decade from 15 percent to 2 percent currently. Coach Inc has been targeting the older generation high profile clients and hence had the high priced range of collections in their retail stores till date, but cannot afford to miss on the major population of ladies in the age group of 18-25.
Coach plans to retain the Kate Spade brand in the US and has intentions to enter into a joint venture with different potential big brands in Europe and China. They won’t change the name and retain the brand value of Kate Spade so that it can connect with their loyal customers and potential new customers easily. It is decided that Coach Inc would be paying $18.50 for every share they purchase from Kate Spade. Coach has an eye on Jimmy Choo brand for a joint venture but seems to be difficult after their deal finalizes with Kate Spade.