Kate Spade LLC

views updated

kate spade LLC

48 West 25th Street
New York, New York 10010-2708
U.S.A.
Telephone: (212) 739-6650
Fax: (212) 739-6544
Web site: http://www.katespade.com

Private Company
Founded: 1993
Employees: Not available.
Sales: $125 million (2003 est.)
NAIC: 316992 Women's Handbag and Purse Manufacturing

Based in New York City's garment district, kate spade LLC nurtures the emerging Kate Spade lifestyle brand. Originally focusing on handbags, Kate Spade is now also involved in stationery, shoes, raincoats, pajamas, eyewear, beauty products, and homewares. In addition, the company has branched into book publishing and music. Kate Spade products are sold in upscale department stores as well as 15 company-owned boutiques. The people behind the Kate Spade vision are wife and husband, Kate and Andy Spade. The company is majority owned by The Neiman Marcus Group, Inc.

1980s Origins

Kate Spade was born Katherine Noel Brosnahan in 1962 in Kansas City, Missouri. Her father owned a construction company and her mother was a housewife. She was not especially interested in high fashion growing up, preferring, rather, to visit a vintage shop to pick up items that her mother might have worn in the 1950s or 1960s. These styles she would eventually emulate when she became a designer. In the meantime, she went to college at Arizona State University in the early 1980s and majored in journalism. At school she found part-time work in a men's clothing store, where she met another Arizona State student, Andy Spade. They began to date and soon became a couple. He had grown up in Arizona, encouraged by his parents to be creative and follow his own path. Even in college he displayed an entrepreneurial spirit, launching a successful advertising agency with a friend. In 1986 Phoenix Magazine named it one of the top 50 new Arizona businesses.

After graduating from college in 1985 Kate, Andy, and a friend, Elyce Arons, planned to tour Europe together. But Andy had to stay in Phoenix to run his business and Arons opted to move to New York to begin her career. Kate traveled on her own and when she returned to the United States she had just a few dollars in her pocket. She stopped to visit Arons in New York and applied at a temp agency to make some quick cash. The next day she was called in to work at Conde Nast, where she was assigned to the fashion department at Mademoiselle magazine. After the assignment was over, she elected to stay on as assistant to the senior fashion editor. Andy then sold his share in the advertising agency and relocated to New York to move in with Kate, and he quickly found work in advertising as a copywriter. He worked for a number of agencies, ultimately becoming a creative director. At Mademoiselle, after six years, Kate rose to the position of Senior Fashion Editor/Accessories, but she began to have misgivings about the career track she was on. The couple, still not married, began thinking about starting a business together. Because Andy was regarded as the creative one, Kate assumed that he would come up with a product and her task would be to sell it. But because they would need to depend on his income from advertising, they could not afford to have him quit his job. According to Kate, as told to Fortune Small Business, Andy said, "What about handbags? You love them."

The idea clicked with Kate, who during her years involved with accessories at the magazine had become disenchanted with the over-designed handbags of the day. Her vision was to design a functional bag that still displayed an air of sophistication and style. In 1992 she quit her job at Mademoiselle, but not before asking if the magazine would take her back if her scheme failed, and then cashed in her $6,000 401k to help finance the new venture. Andy contributed $35,000 from his savings. In the couple's apartment she began designing a handbag, using tracing paper and scotch tape and choosing a simple square shape. The shape was different from what was on the market, and it presented Kate with a blank canvas on which to explore fabrics, colors, and patterns. After she completed six prototypes, she turned to a contact at Women's Wear Daily to get the name of a manufacturer to make a technical pattern and samples. The company wanted nothing to do with a start-up, suggesting she would be better off starting a family than a business, but gave her the name of a Brooklyn company, which agreed to take on the assignment. Before she could show her sample bags to prospective customers, however, she needed a guarantee that the fabric would be available. Again, she overcame her start-up status and the need to commit to buying a large run of fabric before she had any sales by using the Yellow Pages to track down a company that made potato sacks and required no minimum order size. Although she was now able to purchase burlap to sew bags, she now faced the problem of procuring webbing for the handles. She found no way around buying this material in bulk, but was reluctant to pay out the $1,500 required. It was Andy who now stepped in and convinced her to spend the money and forge ahead. He also played a key role in the naming of the new company. Rejecting outright the idea of "Kate Brosnahan" as her label, she considered "Olive" and "Alex Noel," then turned to Andy, who suggested they combine their names: Kate Spade. Moreover, he simply liked the sound of it.

Debut of Kate Spade Bags in the Early 1990s

Kate Spade bags made their debut at a 1993 trade show in New York's Jacob Javits Center. The fledgling company was granted space in a far corner of the building, and rather than spending money on commercial displays, Kate trucked in furniture from the couple's apartment. Despite these limitations, she was able to attract the attention of a buyer from a pair of influential New York department stores, Barney's and Charivari, who bought the bags. Even then, Kate did not recover the cost of the show. But it was an important start as the stores quickly sold the bags and ordered more. At the next accessories show where she presented her next collection, Kate simply used the same shape with different fabric. The Barney's buyer considered the new bags to be no different from the first bags, and Kate had to explain that retaining the shape was the concept—it was her signature. The most distinctive change from the first collection was the presentation of the logo, "kate spade new york," attached to the bag's exterior as an accent. In fact, on a whim the day before the show, she removed the tags from the interior and stayed up all night sewing them on front. Barney's agreed to buy 18 of the bags, but only if the tags were returned to the interior. In a stroke of good fortune Vogue covered the show and featured the bags in an accessories layout. Customers came into Barney's looking for the Kate Spade bags with the logo on front, quickly forcing the store to reverse course and insist that Kate Spade return the tags to the exterior. As a result, the bag's accent began to build the Kate Spade brand name.

Kate Spade stuck with the square shape, a consistency that helped the new label to differentiate itself until it caught on with the public. The company grew slowly but steadily, at a pace with which the couple felt comfortable. In 1993 they brought in a partner, Pamela Bell Simotas, who helped in locating materials and producing the bags, and a year later their old college friend, Elyce Arons, became a partner to head sales and public relations. Kate and Andy also became more than business partners, marrying in 1994. In 1993 the company generated less than $100,000. Two years later that number grew to $1.5 million. During shipping season, the couple's apartment was packed to the ceiling with inventory, but the company soon was able to move into a 2,800-square-foot space on 29th Street, which combined a showroom with manufacturing capabilities. Andy quit his job in 1996 to devote his energies full time to the company. After Neiman Marcus and Saks each ordered 3,000 bags that year, sales jumped to $6 million and Kate Spade was able to turn a profit for the first time. Also in 1996 Kate Spade opened its first boutique, a 400-square-foot shop located in Manhattan's trendy SoHo district, and moved its headquarters into a 10,000-square-foot space in West 25th Street. The spaces were designed by Rogers Marvel Architects, a firm that lacked retail experience. But like Kate Spade, it believed in simplicity and the use of unusual materials. The fact that Rogers Marvel lacked retail experience, in fact, was a plus as far as Kate and Andy Spade were concerned. It would be a collaboration that would continue with the opening of additional boutiques. Just a year after opening its first shop, Kate Spade outgrew the Thompson Street space and moved to a new Soho location, with a number of other shops in the planning stages in Los Angeles and elsewhere.

Kate Spade bags had become trendy enough that the company now had to begin worrying about copies and knockoffs. In 1997 the company sued Gap Inc.'s Banana Republic subsidiary for selling a copy of a Kate Spade nylon tote bag, forcing the retailer to drop the item. Other retailers also would be forced to stop infringing on Spade's designs, including Dayton Hudson and Kmart, as well as manufacturer Accessory Network. Kate Spade also began expanding beyond fabric totes, introducing a collection of leather handbags and other small leather goods in August 1997. The company looked overseas as well, signing a manufacturing, distribution, and licensing agreement with Itochu Fashion System and Sanei International, with the goal of creating 29 in-store shops in Japan and another ten freestanding shops. In addition, Kate Spade began advertising on a national level, as it began taking steps to elevate itself from mini-brand to major label status.

Company Perspectives:

Always searching for the quintessential handbag, Katherine Noel Brosnahan thought it would be easier and definitely more interesting to create her own.

In keeping with the company's unusual approach to business, Kate Spade's first licensing deal, signed in 1998 with the Willard Group, was for stationery items, for which the designer had a personal passion. The Kate Spade Paper collection included formal stationery as well as journals, address books, organizers, agendas, pencils, and erasers. The stationery products were covered in fabric to compliment the current handbag collection. In July 1998 Kate Spade brought in the former president at Donna Karan, Stephen Ruzow, to serve as chief executive and oversee expansion. He wanted to accelerate store openings and greatly enlarge the licensing program, but Kate and Andy Spade had second thoughts about growing so quickly. They put on the brakes, and after just three months Ruzow departed. Ruzlow called them "great kids" but "extremely conservative." From the perspective of Kate and Andy Spade, however, it was a matter of properly cultivating the brand and not doing anything that would cheapen it.

Changing Directions in the Late 1990s

Other companies recognized the potential of the Kate Spade brand, which embodied simplicity and elegance, and several attempted to buy all or part of the company. Neiman Marcus became a suitor and won over Kate and Andy Spade by assuring them creative control of the company they founded. In February 1999 Neiman Marcus paid $33.6 million to acquire a 56 percent interest in the company. The Spades and their two partners continued to own the rest of the company and handle day-to-day operations. Later in the year, Kate Spade found the right executive to bring professional managerial experience to the business. The company hired as its new president Robin Marino, a Donna Karan executive who had been the couple's first choice before hiring Ruzow. She had instead taken a position at Burberry Ltd., but now agreed to take on the challenge of growing Kate Spade, which generated some $25 million in sales in 1998 and $50 million in 1999. Andy Spade remained the company's chief executive officer, however.

The company made additional licensing deals in 1999, but only in areas where it felt it could offer something different. It licensed raincoats, after concluding that there was a market for something more exciting than Burberry beige. It signed a licensing agreement with GFW Group Inc. to create footwear, a category that Kate had wanted to pursue but waited until she could find the right partner. New York-Based GFW did the footwear business for Adrienne Vittadini and Isaac Mizrahi. Also in 1999 Kate Spade teamed up with The Estee Lauder Cos. to develop beauty and related products. Another development in 1999 was the launch of the Jack Spade line of tote bags for men, which were initially sold in a hardware store. The one area in which Kate showed no interest was designing a clothing line, although she would later design a uniform for the new Delta Song airline.

At the start of 2000, Kate Spade operated five stores: three handbags boutiques located in New York, Boston, and Beverly Hills, and Kate Spade Paper and Jack Spade stores in Manhattan. Two other stores, located in Greenwich, Connecticut, and Chicago, also were set to open. The company signed another licensing deal in 2000, this one in upscale women's eyewear, frames, and sunglasses, a category it had been researching for some time. Its partner was Safilo Group, the major Italian eyewear firm. In 2001 Kate Spade became involved in another area of personal interest to Kate: home goods, including fabric, wallpaper, bedding, and tabletop items. The company teamed up with Platform LLC, a design service company headed by two men experienced in the home category. Troy Haterman founded the Troy design store and Stephen Werther was the former president of Ralph Lauren Home and the founder of the Portico chain of upscale home retail stores. But the two parties had a falling out and turned to the courts to settle their differences. Although delayed by a season, Kate Spade would ultimately launch its homewares line.

Kate Spade signed a deal in 2002 with Simon & Schuster to publish a series of three style books. Published in 2004 the books were titled, "Occasions," "Manners," and "Style." According to the New York Times, the books adopted a somewhat haughty tone: " 'Occasions,' the book on home entertaining, insists that plastic flatware never be used, 'not even for a picnic,' 'Manners' presents some of its advice in the form of a hypothetical quandary: 'You're a bridesmaid in your brother's summer wedding in Nantucket. His fiancée has chosen dresses that are vaguely nautical, but your personal style is Comme des Garcons.' And 'Style' tell us to combine navy and pink."

Whether the Kate Spade books were an accurate reflection or not of the Kansas City-born designer's view of proper behavior, there was no doubt that Kate Spade was evolving from a handbag brand to a full-fledged lifestyle brand. It even branched into music, offering a CD of eight "'60s cocktail songs" performed by U.K. band Beaumont. Nevertheless, the company was picky about the categories into which it moved. Kate Spade continued to open boutiques in the United States, adding stores in Boca Raton, Atlanta, Houston, Dallas, Charlotte, Chicago, Georgetown, San Francisco, and Manhasset and Central Valley, New York. There were also plans to open additional boutiques in Las Vegas, Palo Alto, and King of Prussia, Pennsylvania. In addition, in 2003 Kate Spade signed a distribution deal with a Hong Kong company to open 15 stores in the Asian market.

Key Dates:

1992:: Kate Brosnahan quits her job to design handbags.
1993:: Kate Spade handbags are first shown.
1996:: The first Kate Spade boutique opens.
1999:: Neiman Marcus acquires a controlling interest.
2004:: Kate Spade style books are published.

Kate Spade continued to fight vigorously to protect its designs, aggressively pursuing individuals that produced knockoff Kate Spade handbags or sold them on the street or at "purse parties." There was some talk in the press that the demand for Kate Spade bags had cooled somewhat, and the company was faulted for not recognizing the resurgence in leather and failing to come up with a competitive product. In July 2004 the company hired an executive search firm to recruit a new chief executive officer to replace Andy Spade, who would remain as creative director, fueling speculation that the move was made at the behest of Neiman Marcus, which was reportedly disappointed with the growth of the company and believed more executive talent was needed to help take the business to the next level. Andy Spade replied to these criticisms by admitting to the press that while the company endured a rough patch in 2001, along with most retailers, it remained profitable. He explained his decision to step down as CEO: "We grew so quickly, but Kate and I had to stop for a moment, as you do, and build your team, and really focus on the infrastructure." With revenues from the licensing agreements beginning to contribute to the balance sheet, as well as the company's growing string of boutiques, he estimated that the company would reach the $200 million mark in sales in fiscal 2005.