NEW YORK — Industry analysts lauded the Liz Claiborne Inc. acquisition of Kate Spade LLC, saying the manufacturing giant could propel the bridge accessories firm to eventually become a $500 million to $1 billion player.
On Wednesday, Claiborne said it would acquire the 13-year-old accessories brand from Neiman Marcus Group, confirming a report in WWD, for $124 million, including the retirement of debt at closing.
Trudy Sullivan, president of Claiborne, said the deal, which will be completed by the end of the year, would result in a rollout of up to 200 international and U.S. boutiques, as well as further penetration in retail accounts such as Nordstrom, Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman.
For the 12 months ended July 30, Kate Spade generated $84 million in net sales.
Claiborne will apply the same strategies as it did with two of its burgeoning brands: Lucky Brand Jeans and Juicy Couture, the latter of which is expanding at a rapid-fire pace with the opening of 20 boutiques a year, in addition to the 19 it has so far. Lucky Jeans expects to have more than 135 stores in operation by yearend, and has plans to open additional doors next year.
“We’re looking to accelerate Kate Spade’s growth. We believe we can sharpen their execution,” said Sullivan. She said that, ideally, co-founders Kate and Andy Spade would remain in their present roles with a service agreement extending into mid-2007, while the other founding partners, Pamela Bell and Elyce Arons, would stay on board as well, despite Neiman Marcus Group’s agreement to purchase the partners’ shares for $59 million, announced on Nov. 2.
The Kate Spade brand is said to have lost its direction under Neiman Marcus. Prices increased and were out of reach for the target bridge customer, and the company extended into several small, insignificant ventures such as baby strollers, stationery, vintage book selling and baby clothes. Some analysts cited Andy Spade as being focused on the company’s guerrilla marketing tactics and less on product assortment and quality.
Claiborne is looking to expand the brand’s offerings, which include handbags; shoes licensed with Schwartz and Benjamin; eyewear under license with Safilo, and tabletop, with Lenox. Sportswear, jewelry, fragrance, gifts and small leather goods are being discussed to take the accessory brand into the lifestyle arena.
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Catherine Sadler, president of New York marketing firm Catherine Sadler Group and a former vice president of creative services for Coach, said Kate Spade could become an “upmarket Martha Stewart.”
“[Kate] could be a modern-American lifestyle icon,” said Sadler. “Her personality and her celebrity are appealing to the ‘masstige’ market. When I was at Coach, we admired Kate Spade’s innovation. They can compete on the Coach and Cole Haan level.”
Emanuel Weintraub, president and chief executive officer of Emanuel Weintraub Associates, concurred: “We’re in a world of accessorizing and Coach has surely been the icon of affordable luxury in the leather goods marketplace. There surely has to be room for another and that may mean a battle for market share.”
Several observers said Claiborne will use its international know-how by way of its Mexx business to help Kate Spade penetrate Europe, Asia, the Middle East and Canada.
“There’s a great opportunity for international presence,” said Frederick Schmitt, vice president of The Sage Group, an investment banking firm in Los Angeles. “Mexx, Liz Claiborne’s single largest brand out there, gives them good insight into the [international] market.”
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, said the deal was a win-win on both sides, but with the vast expansion of Kate Spade, there is a risk of losing its small and special quality in the marketplace. “Every small company faces a crossroads where they can decide to be either financially secure being a small company or to move deeper and broader into a highly competitive market. There is that danger.”
Liz Claiborne Group president Susan Davidson and Liz Claiborne Brands Accessories president Dina M. Battipaglia will take on oversight of the Spade business. So far, there are no plans to move Spade’s headquarters from 48 West 25th Street. Sullivan would not comment on how many people Kate Spade currently employs and their future with the company. It is also not yet known what will become of Jack Spade, the men’s accessory line, with one store in Manhattan, initiated by Andy Spade. Sullivan said that, once the transaction is completed, the company will look into it.