At the end of February, Fifth & Pacific (NYSE:KATE) will be no more. At the beginning of the year, the company announced that it was going to change its name to Kate Spade & Company following the release of its fourth-quarter results on Feb. 25. Kate Spade sounds better than just Fifth, I suppose.
The original name was meant to capture the East-to-West Coast vibe of Kate Spade and Juicy Couture. Juicy hit the sales bin last year, and after the sale of Lucky Brand, Kate Spade was the only real brand name left standing. For investors, the question is whether this single-mindedness will work out in the company's favor.
Good results, bad results
Fifth & Pacific is no stranger to the failure of a once-popular brand. Juicy Couture used to be the hottest thing since toast, only to fall to the wayside as new fashions took hold. Juicy was unable to move with the market and, by the end, the brand was sitting on falling comparable sales, a loss before tax, and no clear way out of its dilemma.
On the other, Kate Spade has been doing very well. The brand is poised to put up a 30% increase in comparable sales for the fourth quarter. Kate has expanded with the Kate Spade Saturday line, which targets younger, less affluent customers. Management clearly hopes that the diversity in the Kate Spade brands gives it the balance that it's lost by divesting Juicy Couture and Lucky Brand.
All the eggs, a mere one basket
Apart from Kate Spade's and Juicy Couture's success and failure, the market is awash in brands that have suffered and thrived on the whims of the retail market. Coach (NYSE:TPR) is the obvious cautionary tale. The company tried to build on its international and men's strengths last year, but ended up losing focus on its core business: women's handbags. North American sales fell 9% last quarter, with Coach falling out of fashion with that key demographic.
Kate Spade has to avoid that same fate by not getting caught up in its own fantasy of world domination. The key to growing a successful fashion brand is in maintaining a focus on the thing that makes your brand unique while still adapting to the marketplace. Coach succeeded in its adaptation, but has lost sight of what makes it special.
Apart from the sales hit, the problem with failing to keep up with your core means that you have to go back and reinvest in what should be an already strong brand. By putting all of its hopes on Kate Spade, Fifth & Pacific is saying that it's willing to walk the fine line between expansion and brand definition that's brought so much heartache to Coach.
It's going to be an interesting scene to watch. I was a big fan of Lucky Brand, which I thought gave Fifth & Pacific a solid backup for when things went off with its high-flying brands. With Lucky gone, I'll be interested to see how the company manages the occasional drop in demand. Luckily, Kate Spade is still on a solid tear, and there doesn't seem to be any cause for concern in the near future.