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Kate Spade New York: Strategic Decisions Regarding the Future of
“Kate Spade Saturday,” Kate Spade New York’s Brand Extension for
the Trendy Millennial Shopper
“Our aggressive growth path is balanced as we work to enhance quality of sale and
manage our points of distribution to […] drive demand, protecting the brand so that ours
is a long-term growth story.” – Kate Spade & Company CEO Craig Leavitt1
Since opening in 1993, Kate Spade New York has become a competitive global lifestyle
brand, specializing in “affordable luxury” handbags, apparel, accessories, and home
décor. In March 2012, in an effort to grow the company, Kate Spade & Company
launched Kate Spade Saturday—a vertical brand extension created for the millennial
customer. To meet the limited budgets and trendy style of its chosen demographic, Kate
Spade Saturday launched various product lines that were more affordable and more
casual than the product lines of its core Kate Spade New York brand. However, after
two years in the market, several issues have made the Kate Spade Saturday brand less
profitable than the company had hoped.
It is 2014 and it is your team’s responsibility to make a strategic decision that will
determine the future of Kate Spade Saturday.
Task: Your team has narrowed down the choices to three primary solutions: modifying
the product mix, repositioning the products, or discontinuing the brand.
The Board of Directors has asked you to keep the long-term goals of the company in
mind as you present your final solution. The decision should help Kate Spade &
Company continue its aggressive growth in the mid-range luxury fashion industry.
1 Kate Spade & Company.Annual Report. New York, New York: Kate Spade & Company, 2014.
http://www.katespadeandcompany.com/web/guest/annualreports
3
An Overview of the Global Fashion Industry
The international fashion industry brings together designers, manufacturers, suppliers,
merchandisers, and retailers in an effort to sell apparel and accessories to customers
around the world2. In 2014, the global fashion industry made $1.2 trillion dollars in
revenue, with $250 billion generated in the United States.3 Worldwide fashion capitals
include New York City, Paris, Milan, and London, although the industry is growing in
cities worldwide.
Since consumer demand is driven by seasonal fashion trends, the industry is uniquely
characterized by its volatility, variety, and velocity. Products have short life cycles,
consumer demand changes erratically, and supply chains are complex. As a result, an
important feature of a successful fashion business includes timely supply chains. 4 More
than ever, the modern fashion industry depends on time as a competitive advantage. As
new consumer trends enter the market, fashion companies must be ready to meet the
demands of the consumers while styles are still trending.
In addition to timely responses to consumer demand, branding is particularly important
in higher-end fashion goods, as it conveys an impression of a good’s quality and
communicates a consumer’s social status. In fact, a well-positioned brand can often
compel a consumer to purchase clothing, shoes, or accessories as he or she attempts
to build a personal image or emulate a certain lifestyle. In discussing the power of
branding, HSBC managing director Erwan Rambourg claims, "The brands [a consumer
purchases] are actually more important than the level of money [a consumer earns]."5 In
short, brands can largely dictate a consumer’s social status.
Today, the demand for luxury brands is so prominent that there exists a clear hierarchy
of brand names—from “everyday luxuries” like Swatch watches to “ultra-high-end luxury”
like Leviev jewelry. Within this hierarchy lie “affordable luxury” brands—such as Kate
Spade New York, Coach, and Michael Kors—which offer luxury goods for the masses.
In line with current trends, industry leaders predict that the “affordable luxury” market
segment will continue to grow until 2025, as emerging market customers who once
2 "How Much Do Consumers Spend on Apparel?" U.S. Bureau of Labor Statistics. June 2012.
http://www.bls.gov/spotlight/2012/fashion/ 3Maloney, Carolyn. "The Economic Impact of the Fashion Industry." Joint Economic Committee United States
Congress. February 6, 2015.
http://maloney.house.gov/sites/maloney.house.gov/files/documents/The%20Economic%20Impact%20of%20the%20
Fashion%20Industry%20--%20JEC%20report%20FINAL.pdf 4 Čiarnienė, Ramunė, and Milita Vienažindienė. "Management of Contemporary Fashion Industry: Characteristics
and Challenges." Procedia - Social and Behavioral Sciences 156 (2014): 63-68.
http://www.sciencedirect.com/science/article/pii/S1877042814059400 5 Willett, Megan. "Here's the Hierarchy of Luxury Brands around the World." Business Insider. March 23, 2015.
http://www.businessinsider.com/pyramid-of-luxury-brands-2015-3
4
saved to splurge on “premium luxury” goods (e.g. Louis Vuitton) are instead purchasing
“affordable luxury” (e.g. Kate Spade New York).6 7 As a result of this market trend, many
mid-market retailers that sell “affordable luxury” have an opportunity for economic
growth and company expansion in the coming decade.
With the growing popularity of e-commerce, the nature of the global fashion industry has
also changed. Brick-and-mortar stores have seen diminishing traffic and face new
online competition. Overall, this has lowered profit margins and has decreased sales
per square meter within stores.8 Additionally, shoppers with access to the Internet have
become better educated, and are familiar with the perks of online shopping (24/7
service, complete product line navigation, immediate customer service, generous return
policies, frequent sales, and global access). As a result, many fashion companies are
offering online shopping in addition to their brick-and-mortar stores.
To succeed as a modern fashion retailer, it is crucial to keep all these aspects of the
industry in mind. A retailer must react quickly to consumer trends, understand the
importance of branding and positioning, and consider the digitization of the shopping
experience.
A History of Kate Spade New York
In January 1993, Kate Brosnahan Spade, a former magazine editor, founded Kate
Spade New York (then known as Kate Spade Handbags) with the debut of six distinct
handbag silhouettes. Unlike the typical conservative handbag, these handbags
combined clean-cut shapes with playful colour palettes.9 As a brand, Kate Spade New
York conveyed a fresh modernity and a witty lightheartedness that drew in consumer
demand from women around New York City. In 1996, the company’s flagship store was
opened on Madison Avenue in SoHo.
In 2004, Kate Spade New York—which had previously only sold handbags—launched
“Kate Spade at Home,” a home collection brand that included product lines in bath
goods, bedding, wallpaper, and dishes. By 2007, the fashion house fully expanded into
a global lifestyle brand, launching product lines in clothing, jewelry, bedding, legwear,
fragrance, shoes, stationery, and gifts. In the same year, 2007, the fashion company Liz
6 Wendlandt, Astrid, and Brenda Goh. "Accessible Luxury Snaps at Heels of Mega Brands." Reuters. March 5, 2014.
http://www.reuters.com/article/2014/03/05/us-luxury-affordable-analysis-idUSBREA241HO20140305 7 Keller, Carsten, Karl-Hendrik Magnus, Saskia Hedrich, Patrick Nava, and Thomas Tochtermann. "Succeeding in
Tomorrow's Global Fashion Market." McKinsey on Marketing & Sales. September 2014.
http://www.mckinseyonmarketingandsales.com/succeeding-in-tomorrows-global-fashion-market 8 Ibid
9 "The History." Kate Spade & Company.
https://www.katespade.com/THE-HISTORY/katespade-the-history,en_US,pg.html
5
Claiborne Inc. took control over the Kate Spade New York brand. In 2013, Liz Claiborne
Inc. sold their two other labels: Juicy Couture for $195 million, and Lucky Brand Jeans
for $225 million. 10 Since Kate Spade New York was the sole label remaining, Liz
Claiborne Inc. was officially renamed Kate Spade & Company in early 2014.
Currently, the company’s biggest competitors are Burberry, Coach, Marc by Marc
Jacobs, Michael Kors, Ralph Lauren and Tory Burch.11 All of these retailers operate in
the competitive mid-retail fashion industry.
The Long-Term Objectives of Kate Spade & Company: Global Expansion and
Product Category Expansion
Today, Kate Spade New York has over 140 retail stores in the United States and over
175 stores internationally.12 Under the leadership of Craig Leavitt (CEO) and Deborah
Lloyd (President and Chief Creative Officer), Kate Spade New York has seen rapid
growth since 2008. In 2014, Kate Spade & Company saw net sales of $1.14 billion, a
42% increase from 2013 and a 109% increase from 2012. (See 2014 “Selected
Financial Data.”) In the 2014 Annual Report, CEO Craig Leavitt states, “Our
achievements in 2014 paint a picture of Kate Spade & Company’s strong momentum
and speak to our progress as we work towards our long-term goal of becoming a four
billion dollar business at retail.”
In attempting to achieve four billion dollars in annual net sales, Kate Spade & Company
has focused on two components of growth: geographic location and product category
expansion.13 In terms of geographic growth, Kate Spade New York has seen increased
demand both in North America (49% increase in sales from 2013 to 2014) and
internationally (47% increase in sales from 2013 to 2014).14 The company is focusing on
growth in the UK and in Greater China, specifically. In 2014, a UK e-commerce website
was opened. In the same year, Kate Spade & Company established a partnership with
the Lane Crawford Joyce Group’s Walton Brown, Asia’s top fashion retail and brand
management unit, to expand further into China. CEO Leavitt has recently said, “Our
geographic expansion is our most important avenue for growth. The ability to build and
10
Wahba, Phil. "UPDATE 1-Fifth & Pacific Sells Juicy Couture Brand for $195 Million." Reuters. October 7, 2013.
http://www.reuters.com/article/2013/10/07/fifthandpacific-juicycouture-sale-idUSL1N0HX0KQ20131007 11
2014 Kate Spade Annual Report 12
"The Company." Kate Spade & Company.
https://www.katespade.com/THE-COMPANY/katespade-the-company,en_US,pg.html 13
2014 Kate Spade Annual Report 14
2014 Kate Spade Annual Report
6
improve a larger business in the greater China market is really key to our growth
strategy.”15
Today, Kate Spade & Company has gone global, operating in 25 different countries
around the world. 16 Its global strategy is based on five pillars: brand consistency,
continuous product expansion in all established markets, differentiated products in
different locations, new business development in untouched markets, and local
business models specific to each region.17 As a result of a solid brand image and
geographically sensitive product lines, Kate Spade New York has been successful in
branching out globally.
As Kate Spade & Company continues to expand geographically, the company has also
coordinated its e-commerce and digital marketing efforts. Offerings such as next-day
delivery, 24/7 customer service, and playful web design have made its e-stores
extremely profitable. Indeed, around 20% of their sales come from their e-commerce
channels, making Kate Spade & Company one of the most successful e-commerce
sites in the “affordable luxury” fashion industry.18
In terms of product category expansion, Kate Spade & Company consistently introduces
new products in its four main product categories: women’s, men’s, children’s, and home.
Within the women’s product category—Kate Spade New York’s primary and best-selling
category—the company developed its brand extension Kate Spade Saturday in 2012 as
a way to introduce the Kate Spade New York brand to a millennial customer.
Kate Spade Saturday: A Successful Start
In March 2012, Kate Spade opened its first Kate Spade Saturday store in Harajuku,
Japan. By introducing Kate Spade Saturday, Kate Spade & Company added another
global, multichannel lifestyle brand to its pre-existing two brands (Kate Spade New York,
Jack Spade). Each of these brands was developed to target a specific demographic.
Specifically, Kate Spade Saturday was an effort to introduce the Kate Spade New York
brand to a millennial customer by offering more casual and more affordable fashion
merchandise. The target market was a millennial female (18-25 years old) who either
15
Rupp, Lindsey. "Kate Spade to Shut Brand Stores While Forming China Venture." Bloomberg.com. January 30,
2015.
http://www.bloomberg.com/news/articles/2015-01-29/kate-spade-to-shut-brand-stores-while-forming-new-china-
venture 16
"Store Locator." Kate Spade & Company.
http://www.katespade.com/on/demandware.store/Sites-Shop-Site/en_US/Stores-Find 17
Rupp
7
found Kate Spade New York too polished or did not have the disposable income to
purchase products from Kate Spade New York’s line. As such, Kate Spade Saturday
was created as a fun, playful brand that offered trendy clothing, handbags, jewelry,
accessories, shoes, glasses, and home décor items at a lower price point than that of
Kate Spade New York.
The flagship Kate Spade Saturday store in Harajuku, Japan was extremely profitable,
and Kate Spade & Company later opened an e-commerce site for its international
shoppers. American demand surged, so Kate Spade & Company began to open pop-up
shops in prominent New York locations—“shoppable storefronts.” At these storefronts,
shoppers could browse Kate Spade Saturday inventory on iPads and could purchase up
to thirty items at a time through eBay Now.19 Within an hour, the products would be
delivered to any address within the storefront’s city. With regards to the innovative
launch of Kate Spade Saturday, chief marketing officer Mary Beech stated, "That was a
situation where we were rolling out a new brand, which was predominantly [sold online],
and to bring that e-commerce experience to a physical location.”20 Rather than invest in
full stores, Kate Spade Saturday used interactive storefronts and e-commerce to
interact with its customers.
Demand continued to surge. Kate Spade Saturday stores began to replace pop-up
shops. By 2014, there were a total of 31 stores opened worldwide (the United States
and Japan). Many of these stores kept the digital interaction that made the Kate Spade
Saturday pop-up shops so popular. For instance, at the Kate Spade Saturday Store in
Short Hill, New Jersey, the construction site became an interactive zone for potential
customers.21 Young female shoppers were encouraged to partake in personality and
style quizzes. In typical Kate Spade New York flair, the potential shopper would receive
a message (e.g. "She adores pretty things and witty words") that could be sent to a
phone number, email, or social media site. It was a win-win situation for Kate Spade
Saturday: they were able to pique the interest of their potential customers, convey their
brand image, and collect personal data from its target market.
Kate Spade Saturday: Pertinent Problems
19
Sherman, Lauren. "The Rise and Rise of Kate Spade Saturday." Fashionista. July 27, 2013. Accessed September
16, 2015.
http://fashionista.com/2013/07/kate-spade-saturday-resort-2014 20
Indvik, Lauren. "Kate Spade Transforms a Construction Barricade Into an Interactive Shopping Experience."
Fashionista. October 11, 2014.
http://fashionista.com/2014/10/kate-spade-interactive-shopping-barricade 21
Ibid
8
By the end of 2014, Kate Spade Saturday started to face several issues, largely
associated with its marketing and promotional efforts. Your team has been selected to
analyze the situation and develop a cohesive marketing plan to address the following
issues and to drive Kate Spade & Company’s profits. Keep in mind the two long-term
company objectives outlined earlier: global expansion and product category
expansion.
Problem #1: Brand Positioning
Kate Spade Saturday was created as an effort to reach out to a new, younger
demographic. However, rather than attract a new clientele, Kate Spade Saturday largely
brought in customers from its preexisting Kate Spade market. As such, there was a cut
in profit margins, since its customers were leaving Kate Spade New York for Kate
Spade Saturday. Instead of purchasing a $498 handbag from Kate Spade New York,
customers were opting for $298 handbags from Kate Spade Saturday. As a result, Kate
Spade & Company’s profit margins (net profits divided by sales) decreased.
Despite Kate Spade & Company’s efforts to target a younger, millennial customer (18-
30 year old females), Kate Spade Saturday was still too expensive for the younger
demographic. The average price point of Kate Spade Saturday products was slightly
above half of the average price point of Kate Spade & Company. Yet, at the products’
decreased quality, customers were often unwilling to spend over $300 on a handbag or
$200 on a dress. In order to successfully launch a vertical brand extension—the
introduction of a brand in the same category as the core brand but at a different quality
and price point—it is necessary to carefully position the brand to match both the desired
quality and desired price point of the chosen target market. In this case, the quality was
too poor for the chosen price point; alternatively, the price point was too high for the
chosen quality. There was potential for brand dilution.
However, from a fashion and product development standpoint, Kate Spade Saturday
successfully met the needs of its demographic. The collection attracted a lot of positive
reviews from fashion bloggers as Kate Spade Saturday began to launch across the
United States. Reviewers lauded the casual, laid-back style and the colorful prints of the
collection. Despite the poorer quality of the products, Kate Spade Saturday was able to
capture the essence of the original Kate Spade New York brand—playful sophistication
for the modern woman. Women in their early 20s loved the products, but the price point
was better suited for women in their 30s.
Problem #2: Marketing Budget
9
The challenge to position Kate Spade Saturday was only one part of the larger issue
with the Kate Spade Saturday vertical brand extension. Additionally, the company was
investing a lot of time and money in its marketing campaign. Initially, in Kate Spade
Saturday’s flagship store in Japan, the ultimate goal was to create a comfortable, yet
exciting, shopping experience for millennial customers. As such, the store would give
out coffee to browsing customers, print out catchy phrases on large posters, and
release a new exclusive item weekly. The brand hoped that its customers would come
back each week, opting for the in-store experience rather than shopping online.
However, the effort to create an unforgettable in-store experience was extremely costly,
especially with the constant printing and shipping of signage. 22 Furthermore, the
efficiency was low, as the marketing was labor-intensive, not technology-intensive. In
order to address these issues, Kate Spade & Company hired Control Group, a design
company based in New York City that specializes in technology-based projects. The
objective of the partnership was to convey the same brand image and to maintain the
same customer engagement, but to cut down marketing costs. With Control Group,
Kate Spade Saturday completely changed in imagine of their retail environment by
integrating iPads inside the store.23
In line with its innovative brand image, Kate Spade Saturday was introduced by using
fun, playful marketing campaigns that often combined traditional marketing channels
(e.g. in-store promotions) with digital marketing channels (e.g. social media marketing).
The ambitious iPad integration not only allowed customers to interact with the company
through an added touch point (any point of contact between the retailer and the
customer), but also provided a medium that was largely comfortable for Kate Spade
Saturday’s targeted demographic. Rather than encourage customers to shop in-store
through extravagant physical signage and in-store service, the company tried to bring
the online shopping experience indoors. This innovative merge of traditional retail and
e-commerce was implemented in hopes of increasing brand engagement, cutting
signage costs, and streamlining product information.
Though significant costs were cut in implementing the new iPad marketing strategy, the
overall marketing costs—including the initial costs of the signage, the hiring of Control
Group, and the costs of the multiple iPads per store—affected Kate Spade &
Company’s overall company performance. The costs were too high to be very profitable.
In addition, as Kate Spade Saturday was establishing itself as a serious contender as a
lower mid-range fashion retailer, the brand often held flash sales and promotions. Again,
22
Wilson, Mark. "Kate Spade Reinvents Retail As A Lean Startup." Co.Design. December 23, 2013.
http://www.fastcodesign.com/1672132/kate-spade-reinvents-retail-as-a-lean-startup 23
"Kate Spade: A New In-Store Experience for a New Brand." Control Group.
http://www.controlgroup.com/kate-spade.html
10
these promotional events significantly lowered the profit earned within the stores. The
brand struggled to sell the bulk of their merchandise at its original price.
Problem #3: Product Mix Width
Additionally, because Kate Spade Saturday launched as a separate global,
multichannel lifestyle brand, it offered a wide product mix of various product lines. Some
analysts argued that Kate Spade Saturday was too aggressive in rolling out its brand.
Rather than focus on adding depth to several product lines (e.g. dresses, tops, bottoms),
the brand launched as a lifestyle brand—selling everything from beach totes to fine
dishes to casual shoes. 24 Without first testing the market, Kate Spade Saturday
launched too many product lines. Customers were not as receptive to the wide range of
product lines as the company had hoped. Sales were weaker than expected.
Effect on Profit Margins
These three underlying issues negatively affected both Kate Spade & Company’s profit
margins and stock prices.
Profit margins are a measure of a company’s profitability, calculated by dividing net
profits by sales. The calculated value represents the percentage of each dollar of
revenue available after considering costs. While increased earnings of a company
indicate general profitability, it does not necessarily highlight the company’s overall
performance. Companies aim to have increasing profit margins—an indication of
competitive performance and internal efficiency. With high marketing costs and lower-
than-expected sales, Kate Spade Saturday began affecting Kate Spade & Company’s
profit margins in June 2014, when the company saw its lowest profit margin value
(58.61%) since March 2013.25 The dropping profit margin came as a surprise to most,
as the core Kate Spade New York brand continued to grow considerably. Thus, the
lowered profit margin indicated that the current Kate Spade Saturday implementation
needed revision, with a push to cut costs, raise prices, and/or discontinue the brand.
24
Sherman, Lauren. "Why Kate Spade Saturday Missed the Mark." Fashionista. February 2, 2015.
http://fashionista.com/2015/02/kate-spade-saturday-closed 25
"Kate Spade Gross Profit Margin (Quarterly):." YCharts.
https://ycharts.com/companies/KATE/gross_profit_margin
11
The Three Solutions
Your team has been hired to select one of three broad solutions in making Kate Spade
& Company profitable.
Solution #1: Modify the Product Mix
In order to make the Kate Spade Saturday brand a success, the products of its brand
must meet the needs and wants of its chosen demographic. Kate Spade & Company
has chosen to target millennial women between the ages of 18-30. The women in Kate
Spade Saturday’s target market are looking for the high quality fashion and accessories
on a limited budget. Brand image is extremely important for Kate Spade Saturday’s
target market: its customers are looking for the same fun, colorful design that has made
the core Kate Spade New York brand so popular.
If Solution #1 is chosen, Kate Spade & Company would like to progress in one of two
ways. The first option is to decrease the average price point of the Kate Spade Saturday
line in order to reflect the decreased quality of the merchandise. Doing so will put the
products within the budget of the young target market. The second option is to increase
the quality of the products in order to justify the price. This option will allow the brand to
maintain its luxury status, and will help the company stay more in-line with its core
brand image.
For the first option (decreasing average price point), it is important to consider the
impact of the change on Kate Spade & Company’s brand image. Some luxury goods
may be Veblen goods—products that have increasing demand with increased prices.
Because luxury fashion goods often convey social status, increased prices may become
more desirable as a result of a brand’s exclusivity.26 Lowering the price could cause a
decrease in demand. Even if demand increases, the lowered price may cause brand
dilution—a weakening of the core brand’s image in the luxury market.
For the second option (increasing the quality), it is important to consider the supply
chain model. Currently, Kate Spade & Company works with Li & Fung, a Hong Kong
company that operates as the supply chain manager for various brands and retailers.27
Li & Fung helps Kate Spade & Company locate factories, choose raw materials, ensure
safe and legal factory conditions, and transport finished products. As a result, most of 26
Frank, Robert. "Conspicuous Consumption? Yes, but It's Not Crazy." The New York Times. November 22, 2014.
http://www.nytimes.com/2014/11/23/upshot/conspicuous-consumption-yes-but-its-not-crazy.html?abt=0002&abg=0 27
Einhorn, Bruce. "Li & Fung: A Factory Sourcer Shines." Bloomberg.com. May 14, 2009.
http://www.bloomberg.com/bw/magazine/content/09_21/b4132054330480.htm
12
the operational work with regards to supply chain management is completely
designated to Li & Fung. Currently, Li & Fung generates about $300 million dollars in
sales annually from Kate Spade & Company. If Kate Spade & Company chooses to
increase the quality of its Kate Spade Saturday line, it will be an expensive process. If
Kate Spade & Company chooses to bring supply chain management in-house, it will be
a labor-intensive and time-intensive process of identifying, locating, and negotiating with
a new vendor.
Solution #2: Reposition the Products
Since the brand currently faces issues with meeting the needs of its chosen target
market, a second solution includes repositioning the brand by identifying a new target
market. For example, instead of targeting millennial women who have limited disposable
income, Kate Spade Saturday could be repositioned as an “affordable luxury” casual
fashion brand for working businesswomen.
Two main challenges face this solution. Firstly, Kate Spade Saturday was created as an
attempt to diversify its market. The company wished to curate collections for a new
group of customers. However, because of the high price, most of its current Kate Spade
Saturday customers are pre-existing Kate Spade New York customers. The company
hopes to avoid overlap in its Kate Spade New York and Kate Spade Saturday markets.
Repositioning the brand at its current brand and quality may cause even more overlap.
Secondly, in order to reposition the brand, an intensive marketing strategy must be
implemented. The company has already invested a lot of money in creating an image
for Kate Spade Saturday. Changing its target market will require creative, cost-efficient
marketing campaigns. Though this process may take time, money, and labor, if correctly
implemented, Kate Spade Saturday can become a successful vertical brand extension
in the long-run. If a new position in the market is chosen, it may be necessary to modify
the product mix as in option #1 in order to fit this new position.
Regardless of the solution chosen, you must decide on a cohesive, clear marketing plan.
Consider Exhibit 7 in your analysis.
Solution #3: Discontinue the Brand
A third solution calls for the discontinuation of the Kate Spade Saturday brand. All 31
stores would close. Employees working for Kate Spade Saturday would be laid off,
remaining inventory would be sold at a discounted rate through e-commerce, and
business deals would be closed. Kate Spade & Company would anticipate a cost of $32
13
million to $39 million in order to close all these stores.28 It is necessary close Kate
Spade Saturday stores because many are open In the same area as regular Kate
Spade store locations, making them unnecessary, and others are in places that aren’t
suitable locations to sell Kate Spade merchandise. There are two options the company
is considering if this solution is chosen.
Firstly, the brand can fully terminate its Kate Spade Saturday brand and solely focus on
its long-term goal of becoming a $4 billion dollar company. Secondly, the company can
decide to integrate Kate Spade Saturday as a product line within its core Kate Spade
New York brand. In this option, customers would be able to buy a Kate Spade Saturday
goods at Kate Spade New York. If this option is chosen, the company could choose to
improve the quality and raise the price of the Kate Spade Saturday merchandise.
28
Gustafson, Krystina. "In Big Shake-up, Kate Spade to Close Saturday Stores." CNBC. January 29, 2015.
http://www.cnbc.com/id/102380420
14
Exhibit 1: Select Financial Data (Kate Spade & Company, 2014)
(Kate Spade & Company Annual Report 2014)
15
Exhibit 2a: Kate Spade & Company Profit Margins
June 30, 2014 58.61%
March 31, 2014 61.19%
Dec. 31, 2013 61.65%
Sept. 30, 2013 61.38%
June 30, 2013 61.76%
March 31, 2013 57.41%
Dec. 31, 2012 No data available
Sept. 30, 2012 55.72%
June 30, 2012 56.62%
March 31, 2012 56.47%
Dec. 31, 2011 53.79%
Sept. 30, 2011 54.33%
June 30, 2011 51.53%
March 31, 2011 53.34%
Dec. 31, 2010 51.80%
Sept. 30, 2010 49.99%
June 30, 2010 49.64%
March 31, 2010 46.37%
Dec. 31, 2009 48.14%
Sept. 30, 2009 45.29%
June 30, 2009 47.59%
March 31, 2009 44.76%
(YCharts)
Exhibit 2b: 2014 Profit Margins of Selected Competitors
Michael Kors Holdings 58.36%
Ralph Lauren 55.38%
Coach 71.61%
(YCharts)
Exhibit 3: Kate Spade & Company Annual Balance Sheet
16
In Millions of USD (except for per share items) As of 2013-12-28
As of 2012-12-29
As of 2011-12-31
Cash & Equivalents 130.22 59.40 179.94
Short Term Investments - - -
Cash and Short Term Investments 130.22 59.40 179.94
Accounts Receivable - Trade, Net 89.55 121.59 119.55
Receivables - Other - - -
Total Receivables, Net 89.55 121.59 119.55
Total Inventory 184.63 220.54 193.34
Prepaid Expenses - - -
Other Current Assets, Total 247.30 50.73 58.91
Total Current Assets 651.71 452.26 551.75
Property/Plant/Equipment, Total - Gross 438.07 669.44 683.20
Accumulated Depreciation, Total -289.00 -449.48 -444.53
Goodwill, Net 49.11 60.22 1.52
Intangibles, Net 90.68 131.35 117.35
Long Term Investments - - -
Other Long Term Assets, Total 36.94 38.73 40.72
Total Assets 977.51 902.52 950.00
Accounts Payable 142.65 174.71 144.06
Accrued Expenses 121.87 131.24 129.35
Notes Payable/Short Term Debt 3.41 22.63 64.75
Current Port. of LT Debt/Capital Leases - - -
Other Current liabilities, Total 177.31 87.27 88.81
Total Current Liabilities 445.24 415.85 426.97
Long Term Debt 381.80 379.32 372.75
Capital Lease Obligations 8.99 4.34 8.82
Total Long Term Debt 390.79 383.66 381.57
Total Debt 394.20 406.29 446.31
Deferred Income Tax 16.62 21.03 13.75
Minority Interest - - 0.00
Other Liabilities, Total 157.34 208.92 236.70
Total Liabilities 1,009.99 1,029.45 1,058.99
Redeemable Preferred Stock, Total - - -
Preferred Stock - Non Redeemable, Net - - -
Common Stock, Total 176.44 176.44 176.44
Additional Paid-In Capital 155.98 147.02 302.33
Retained Earnings (Accumulated Deficit) 1,020.63 1,071.55 1,246.06
Treasury Stock - Common -1,364.66 -1,511.86 -1,827.89
Other Equity, Total -21.86 -10.07 -6.08
Total Equity -32.48 -126.93 -108.99
Total Liabilities & Shareholders' Equity 977.51 902.52 950.00
17
In Millions of USD (except for per share items) As of 2013-12-28
As of 2012-12-29
As of 2011-12-31
Shares Outs - Common Stock Primary Issue - - -
Total Common Shares Outstanding 122.94 116.59 100.84
18
Exhibit 4: 3 Key Factors for Luxury Purchases
(Source: McKinsey Insights China)29
29
Atsman, Yuval, Vinay Dixit, Glenn Leibowitz, and Cathy Wu. "Understanding China's Growing Love for
Luxury." McKinsey Consumer & Shopper Insights. March 2011.
https://solutions.mckinsey.com/insightschina/_SiteNote/WWW/GetFile.aspx?uri=/insightschina/default/en-
us/aboutus/news/Files/wp2055036759/McKinsey%20InsightsChina%20-
%202011%20Luxury%20Consumer%20Report_7fbe9eff-0bfd-4cea-8bc5-2dff874db6d0.pdf
19
Exhibit 5: Select Kate Spade Saturday Products/Graphics
1. Kate Spade Saturday Logo
2. Kate Spade Saturday In-Store iPads
(Source: Fast Company Design)30
30
Wilson
20
3. Selected Kate Spade Saturday Merchandise
21
4. Kate Spade Saturday Pop-Up Shop
(Source: Mashable)31
31
Indvik, Lauren. "SoHo Gives a Glimpse of Retail's Future." Mashable. June 13, 2013.
http://mashable.com/2013/06/09/retail-store-future/
22
Exhibit 6: Product Line Analysis
Exhibit 6a: Select Costs and Price Points for Primary Kate Spade New York
Product Lines
Product
Line
Price Point
in USD
(Average
Retail
Price)32
Average
Cost of
Buying and
Sourcing
from Li &
Fung,
Calculated
Per Product
(Wholesale
Cost)
Average
Marketing
Costs,
Calculated
Per Product
Additional
Operational
Costs (Real
Estate,
Employee
Salaries,
etc.),
Calculated
Per Product
2014 Total
Annual
Revenue
Apparel 350 49 11 61 200,395,008
Eyewear 150 21 5 26 10,019,750
Fashion
Accessories
100 15 2
17 60,118,503
Handbags 300 44 10 52 400,790,016
Home 50 6 2 9 100,197,504
Jewelry 100 14 3 17 70,138,253
Shoes 250 33 8 41 80,158,003
Swim 100 14 4 17 30,059,251
Watches 300 40 9 51 50,098,752
32
"Kate Spade New York." Kate Spade & Company.
http://www.katespade.com/
23
Exhibit 6b: Select Costs and Price Points for Primary Kate Spade Saturday
Product Lines
Product Line Price
Point in
USD
(Average
Retail
Price)33
Average
Cost of
Buying and
Sourcing
from Li &
Fung,
Calculated
Per Product
(Wholesale
Cost)
Average
Marketing
Costs,
Calculated
Per Product
Additional
Operational
Costs (Real
Estate,
Employee
Salaries,
etc.),
Calculated
Per Product
2014 Total
Sales
Revenue
Apparel 90 14 21 13 45,088,859
Eyewear 60 9 10 10 2,732,658
Fashion
Accessories
40 7 8 5
6,831,645
Handbags 130 20 27 24 40,989,872
Home 25 4 4 4 15,029,620
Jewelry 30 6 6 5 6,831,645
Shoes 85 13 17 14 10,930,632
Swim 50 8 9 10 2,732,658
Watches 50 10 11 11 5,465,316
Exhibit 7: Selected Marketing Campaigns 33
Saum, Johanna. "Press Release: Kate Spade New York Announces Kate Spade Saturday." Corporate-ir.net.
October 2012.
http://phx.corporate-ir.net/phoenix.zhtml?c=82611&p=irol-newsArticle&ID=1748514
24
In 2014, Kate Spade & Company incurred marketing and promotion expenses of $56.9
million, an increase from 2013 ($42.8 million) and 2012 ($22.7 million). Since Kate
Spade New York and Kate Spade Saturday both operate in extremely competitive
fashion markets, marketing is crucial in reinforcing brand image, raising awareness, and
interacting with potential and current customers. The three main strategies used are
direct mail, in-store events, and internet marketing. Often, these three marketing
platforms are combined in integrated campaigns.
As of now, Kate Spade Saturday has invested largely in all three marketing strategies,
with frequent direct mail, interactive in-store features, and a strong social media
presence. Regardless of which solution is chosen, a clear marketing plan must be
outlined.
Overall, Kate Spade & Company hopes to expand its e-commerce site, integrate online
and in-store promotions, and reflect the distinct personality of the brand within stores.
Marketing
Strategy
Description Cost Reach Customer
Response
Rate
%
Increase
in In-Store
Sales
%
Increase
in Online
Sales
Direct Mail The primary method
of direct mail used in
Kate Spade New
York campaigns is
email.
Johanna Murphy, vice
president of e-
commerce, states,
“We know what will
make people react,
and we spend a lot of
time evaluating the
performance of e-mail
and creative and just
what things work.”34
The marketing team
works hard to create
0.03 cents
per click
200,000 on
mailing list,
globally
23%
customers
click on the
email35
79% 51%
34
Strugatz, Rachel. "Kate Spade's Digital Play." WWD. February 3, 2013.
http://wwd.com/globe-news/digital/kate-spades-digital-play-6686622/ 35
Kopecky, Juliette. "An Investigation Into the ROI of Direct Mail vs. Email Marketing [DATA]." Hubspot Blogs.
January 10, 2013.
http://blog.hubspot.com/blog/tabid/6307/bid/34032/An-Investigation-Into-the-ROI-of-Direct-Mail-vs-Email-
Marketing-DATA.aspx
25
compelling email
subject lines and to
include compelling
graphics that
represent the Kate
Spade brand.
In-Store
Events
The majority of Kate
Spade & Company’s
marketing budget
goes towards in-store
promotions, including
seasonal sales. The
goal of these in-store
events is to
encourage multiple
item sales, build loyal
relationships with
customers, and
convey a consistent
brand image. In the
future, the goal is to
integrate e-commerce
marketing techniques
with in-store events.
$100,000
per store
per year
(140 stores
in USA,
175 stores
internation
ally)
500
customers
per store
per day
90%
customer
engageme
nt with
promotions
400% 62%
Internet
Marketing
Internet marketing
has been used
extensively to
establish Kate
Spade’s brand image.
In its annual Digital IQ
Index, New York
University’s
organization L2
ranked Kate Spade
#3 in 2012, #4 in
2013, and #5 in 2014.
In 2014, Coach,
Gucci, Tory Burch,
and Ralph Lauren
beat out Kate Spade
in Digital IQ.36
The
ranking system
considers mobile,
Facebook:
0.0001
cents per
click
Twitter:
0.0001
cents per
click
Tumblr:
0.0001
cents per
click
YouTube:
0.04 cents
per click
Instagram:
0.005 cents
Facebook:
2.2 million+
likes
Twitter:
850,000+
followers
Tumblr:
10,000+
followers
YouTube:
9,000+
subscribers
; 4.6
million+
views
Instagram:
1.1 million+
Facebook:
500 likes
per post
Twitter: 50
retweets,
100
favorites,
per post
Tumblr:
100 notes
per post
YouTube:
10,000
views per
video, 1.7
million
views on
most
Facebook:
10%
Twitter:
4%
Tumblr:
5%
YouTube:
36%
Instagram:
40%
: 24%
Twitter:
7%
Tumblr:
17%
YouTube:
55%
: 73%
36
"Fashion 2014." L2 Business Intelligence for Digital. December 1, 2014.
http://www.l2inc.com/research/fashion-2014
26
website, social media,
and digital marketing
customer
engagement and
effectiveness.
per click
followers popular
video
Instagram:
20,000
likes per
post
27
Exhibit 8: Core Products Customer Survey
The following customer survey was conducted in October 2013 across North America,
Asia, and Europe. 1500 randomly selected Kate Spade shoppers identified what
constitutes Kate Spade & Company’s core products.
Age
Group
Location Apparel Eyewear Fashion
Accessories
Handbags Home Jewelry Shoes Swim Watches
18-29 North
America 7% 0% 0% 89% 2% 0% 2% 0% 0%
30-39 North
America 8% 0% 0% 83% 6% 0% 3% 0% 0%
40-49 North
America 4% 1% 2% 74% 10% 0% 6% 0% 3%
50-59 North
America 4% 3% 3% 70% 13% 1% 4% 0% 2%
60+ North
America 3% 5% 1% 73% 8% 1% 8% 0% 1%
18-29 Asia 16% 4% 0% 60% 14% 1% 5% 0% 0%
30-39 Asia 15% 3% 0% 72% 3% 0% 7% 0% 0%
40-49 Asia 11% 7% 0% 65% 7% 1% 9% 0% 0%
50-59 Asia 12% 7% 1% 64% 5% 1% 9% 0% 1%
60+ Asia 8% 7% 3% 56% 17% 0% 9% 0% 0%
18-29 Europe 10% 0% 0% 88% 1% 0% 1% 0% 0%
30-39 Europe 8% 2% 0% 87% 2% 0% 1% 0% 0%
40-49 Europe 7% 2% 0% 78% 11% 1% 1% 0% 0%
50-59 Europe 8% 3% 1% 72% 12% 2% 1% 0% 1%
60+ Europe 8% 7% 1% 66% 14% 2% 1% 0% 1%