The past couple of years have been busy ones for Coach. The company has undertaken a turnaround of its main brand, successfully bringing back a premium edge to what had become a ubiquitous and devalued name. Coach has also integrated the Stuart Weitzman business by both extracting operating efficiencies and creating new sales opportunities.
While these initiatives have not yet run their full course, they are reaching maturity. As such, the growth they will deliver over the next few years will become more limited – especially in North America where Coach does not want to make the same mistake of overexpansion that plagued it prior to the brand reinvention.
Given this backdrop, we believe that the company’s desire to make an acquisition is both prudent and logical.
Coach has recently run the rule over a number of businesses including Burberry and Jimmy Choo. However, it has now plumped to buy Kate Spade for $2.4 billion. In our view, this is a sensible deal both in terms of the brand fit and the premium that Coach is paying.
As a business, Kate Spade has significant potential mainly because it is in the early stages of…