Coach Inc’s US$2.4 billion acquisition of rival Kate Spade & Co is part of its broader push for fatter profit margins, even if that means settling for lower sales.
As it prepares to take over the handbag maker and revamp its supply chain, Coach indicated that it would pull Kate Spade merchandise from some retailers and so-called flash-sale sites, echoing a strategy it has already adopted for its own brand of luxury goods.
“Near term, it’s definitely going to be painful,” Edward Jones & Co analyst Brian Yarbrough said. “The good thing is, Coach has been through this before and shown they can be successful.”
Photo: AFP
Heavy discounting by wholesale customers has hurt the cachet of brands such as Coach and Kate Spade, which sell mostly through their own stores and online.
To fight back, they are trying to move fewer products through discounters such as TJ Maxx and department stores, which have been slashing prices on luxury handbags to cope with slower mall traffic.
Coach on Monday said it would buy Kate Spade as part of its strategy to build a multi-brand lifestyle company from New York, where both companies are based. Known for its whimsical handbag designs, Kate Spade has been successful at luring millennials, who make up 60 percent of its customers.
Kate Spade had become “too dependent on the overly promotional channels of online flash sales and wholesale disposition,” Coach chief executive officer Victor Luis said.
To boost its own margins, Coach has been adding more handbags to its luxury 1941 line and stepping up store services to draw shoppers who are willing to pay top dollar.
Coach’s comparable-store sales in North America rose 3 percent in the first quarter, the fourth consecutive gain and above the 1.4 percent increase predicted by analysts.
Gross margins expanded 1.9 percentage points year-on-year to 70.9 percent.
Coach has also said sales of items priced at more than US$400 now make up 55 percent of handbag sales in North America, an increase from 40 percent posted during the same period last year. The results, delivered last week, sent the stock surging 11 percent, its biggest daily gain in more than six years.
Coach, Kate Spade and their rival Michael Kors Holdings Ltd still have work to do to whittle down the excess inventory at retailers. Among the three, Coach’s products are currently marked down the most — by an average of 42 percent, mostly on shoes.
That compares with 40 percent at Michael Kors and 36 percent at Kate Spade, according to Edited, a data-analytics company for the fashion industry.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to