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Kate Spade determined not to be a flash in the pan
Fast-moving trends have many retailers struggling to define their identity, but Kate Spade New York is finding a place in affluent women's closets by churning out sleek, functional handbags and whimsical, ladylike clothes chic enough for an Upper East Side socialite.
That look has lately helped the brand achieve strong growth. Last year, the company raked in US$1.2 billion in sales, a staggering 42 per cent increase over 2013. On Thursday, the company announced quarterly earnings results that show its solid growth continued into the first quarter of 2015: Total sales rose 14 per cent to US$255 million.
The company's rise hasn't been without stumbles: It posted a US$55 million loss during the quarter as it shutters its short-lived casual chain, Kate Spade Saturday, and closes its fleet of Jack Spade men's stores. The move to get rid of those concepts, analysts say, will allow the brand to refocus on its namesake brand and, in doing so, potentially avoid a pitfall that has snared its rivals Coach and Michael Kors.
But investors were weary enough to send the company's stock tumbling more than 10 percent Thursday.
Luxury retails have struggled to maintain their cool lately. Michael Kors has seen slower growth and Coach sales have declined as both grappled with a tricky image problem: Their bags became so popular with everyday shoppers that they lost the high-end, trendy fashionistas that helped catapult them to success in the first place.
Kate Spade sees potential for this problem to hit its own business. After all, while its first-quarter sales growth stacked up impressively against the vast majority of the retail industry, its growth was slower than it has been in recent quarters.
And so Kate Spade is looking to fight that prospect with a simple strategy: Fiercely protecting the exclusivity of its brand.
On a conference call Thursday, executives said they have cut back on "40 per cent off your purchase"-type sales on their website and have asked that their merchandise be excluded from department store sales. Kate Spade is betting that these markdowns dilute the cachet of the brand.
"This is about continuing to foster aspiration," chief executive Craig Leavitt told investors during a conference call.
Kate Spade has also put the brakes on expansion of its low-price outlet business, saying that it plans to "moderate significantly" openings of this type of store in 2015.
Kate Spade's exclusivity strategy is not just about keeping a lid on deals. Rival Michael Kors, for example, has been trying to grow the audience for its US$298 leather handbags. Kate Spade, though, is taking a different tack. It is sticking with the same narrow band of customers, but trying to appeal to her with wider offerings such as kids gear and home decor.
In February, it launched a children's clothing line that features items such as a US$74 drop-waist dress for toddlers. The company said Thursday that the line has "performed well" and will be expanded to more stores this fall. A baby clothing and gift line is planned for fall.
Still, Kate Spade hasn't always been faithful to its pledge to protect its brand. Its Kate Spade Saturday concept, for example, targeted millennial women who didn't quite have a budget for the main brand's US$350 pumps or US$598 cocktail dresses. In January, the company announced it was shuttering Saturday stores and shutting down its standalone website.
Saturday was "not only expensive to keep afloat, but it kind of diverted attention from this great growth opportunity they had in front of them," said Ed Yruma, a retail analyst with KeyBanc Capital Markets.