Coach Inc. is planning to make a deal to buy out Kate Spade for $2.4 billion. Kate Spade is a popular brand among younger customers, and they are seeking them with this deal. They also plan on expanding Kate Spade outside of the United States to reach customers in areas such as China and Europe. The plan is to not cross sell products, but to Kate Spade the way it is such as their product and employees. Both sides can terminate the deal if it is no longer supported, but either way it goes, Kate Spade will be required to "pay Coach an $83.3 million termination fee."
As stated in the article, Coach once tried to be more on the luxury side and reach "slightly older and wealthier clients with higher-priced bags, creating a gap for younger 20-something shoppers that it can fill with Kate Spade." With this deal, they are able to reach older customers as well as younger customers. This relates to the class because Coach is trying to expand their target market, seeking customers from every age group. They do not plan on cross selling their products, and rather keep them separate from each other. Coach gains profit from both the "slightly older and wealthier side" and also gains profit from the younger consumers of the product.
I believe it is a smart decision that can boost Coach's profits as long as they keep the Kate Spade brand separate from Coach. This can be done to keep the Coach brand consistent as well as help keep the Kate Spade brand young. Kate Spade also should focus solely on the younger market which can differentiate it from its competitors as well Coach itself.
ReplyDeleteCoach making a smart decision in switching to a more luxury focused brand, hoping to bring in more revenue from their targeted customers, more from their wealthier clients.
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