Coach’s handbags sell for $285 to $3,000, while Kate Spade’s retail for $100 to $500. (Louis Vuitton’s are priced from $970 to $15,800.) The two companies also offer a combination of men’s wear, ready-to-wear fashion, accessories, fragrances and homeware.
“The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multibrand organization,” Victor Luis, chief executive of Coach, said in a statement on Monday.
“We believe Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential,” he added.
Coach, which offered $18.50 a share in cash for Kate Spade, a premium of 9 percent on the closing price on Friday, said it expected to generate about $50 million in savings from the deal within three years.
The company grew out of a wallet manufacturer in 1961 to produce handbags used by all manner of women, from full-time mothers to professional women.
But it has fallen on harder times in recent years, struggling against heightened competition, its own discounting of products and a bloated store network.
Those difficulties mirror the challenges facing the retail sector in North America and beyond.
While outlet stores have become more popular in recent years — Coach operates several hundred — department stores cannot attract the crowds they once did, and traffic to malls has slowed as people hunt for bargains online.
Traditional brick-and-mortar retailers, too, face the pressure of the migration to e-commerce, where once-mighty chains are struggling to catch up to Amazon and a crop of nimble digital upstarts.
That has put more pressure on retailers, especially department stores, to slash prices and, therefore, squeeze profits. Giants like Macy’s, JC Penney and Neiman Marcus have faced particularly challenging times.
But that race to the bottom has also affected some of the brands those department stores carry, from mass-market retailers like Gap, J Crew and Urban Outfitters to high-end names like Ralph Lauren. Even Michael Kors, Coach’s archrival and once a star in the sector, has been forced to retrench after a period of overexpansion.
With its ubiquitous presence in shopping malls and department stores across the country, Coach has not been spared.
This month, the company, which pioneered the sale of luxury handbags at relatively affordable prices, announced that department store revenue had fallen 40 percent in the most recent quarter, a sign of how heavy discounts, falling foot traffic and other troubles have seeped into the brand.
“Coach stuff was just so ubiquitous, and the brand had become a bit devalued, and no one wanted to pay full price for it,” said Neil Saunders, a retail analyst with GlobalData Retail, a research firm.
The constant discounting had diluted the brand’s luxury appeal, and the company, under the direction of Mr. Luis, looked for ways to cut back on the discounts — including closing a significant number of its locations within department stores, known as “shop-in-shops.”
“If you want to be a premium brand, you can’t really be too strongly associated with some of the mainstream department stores like Macy’s,” Mr. Saunders said.
Affordable luxury, too, is a competitive sector. Weaker brands cannot afford to discount too heavily and risk eroding their cache with customers even further.
“In many ways the market is ripe for consolidation, which is partly what the Coach and Kate Spade merger reflects,” Mr. Saunders said. “It’s about bringing together complementary brands.”
Kate Spade has also relied on heavy promotions. But the company has been busy remaking itself into a lifestyle brand, one that could benefit from Coach’s broad distribution channels. As of July, Coach operated 228 retail locations and 204 outlets, along with 552 Coach-operated shop-in-shops, according to the company’s most recent annual report.
The Kate Spade acquisition is the latest step in an ambitious turnaround plan that Mr. Luis has been leading.
In 2014, he hired a new creative director, Stuart Vevers, who transformed the brand into a celebration of cool — a Route 66-inspired strain of Americana intended to appeal to millennials. (A coming handbag collaboration with the pop star and actress Selena Gomez also will not hurt.)
Mr. Luis also closed or renovated underperforming stores, re-examined Coach’s pricing strategy and began a crusade to persuade customers to once again pay full price for its wares.
But crucial to his strategy was the ambition to build a multibrand luxury conglomerate.
Coach bought the American footwear brand Stuart Weitzman in 2015. Analysts have speculated about whether Coach would buy Burberry, Britain’s biggest luxury brand by sales. And just this month, Coach was tipped as the favorite to buy Jimmy Choo, the British accessories label, when it was put up for sale just three years after being listed on the London stock market.
Now Coach has Kate Spade, a company that has undergone its own transformations.
Co-founded by a former fashion journalist in 1993, the brand was sold in 2006. The next year, Kate Spade’s eponymous founder left the company. In 2014, the firm that controlled the brand sold several other brands before renaming itself Kate Spade & Company.
The deal for Kate Spade was announced after analysts at HSBC wrote in a note to clients last week that Coach would be well suited to make acquisitions.
“While M&A, is not often seen positively by equity markets in luxury, we believe that for Coach it is different,” the analysts wrote. Coach would benefit from making deals, they said, because it would reduce dependency on just one brand and lower the company’s reliance on its own-brand stores.
Better-than-expected earnings for its third quarter, which ended April 1, suggest that Coach’s strategy is paying off.
This is not the first time Coach has tried to expand its profile and balance sheet via separate brands.
In 2009, after considering other acquisitions, Coach decided to create a brand from scratch and formed Reed Krakoff, a high-luxury brand with a minimalist architectural aesthetic founded by, and named for, Coach’s executive creative director at the time.
Though it received critical praise, the venture proved more costly than Coach had anticipated, and in 2013, it sold the company to a group of investors and Mr. Krakoff, who left Coach to concentrate on his own brand. But they struggled with the long profitability horizon of luxury goods, and in 2015, Reed Krakoff suspended trading.
The moral of that story, at least for Mr. Luis, seems to be to focus on the accessible luxury market.
Correction: May 8, 2017
An earlier version of a headline with this article misstated the amount that Coach is spending to acquire Kate Spade. It is $2.4 billion, not $2.4 million.