Isn't going on vacation difficult? You go out in one nice dress and suddenly the poor company that makes the thing sells out of them. Wait, you don't have that issue? Well, you must not be Catherine, Duchess of Cambridge, aka Kate Middleton. According to the Daily Mail, Catherine wore a Tory Burch dress while visiting New Zealand, causing the dress to almost immediately sell out.
It seems like Tory Burch has been on the cusp of going public for months now. The designer is a direct competitor to companies Michael Kors (NYSE:CPRI) and Kate Spade (NYSE:KATE), but has yet to get the financial backing to get the same exposure as those brands. Burch's fortune looks like it's made now, with investors waiting in the wings.
The Tory Burch brand
Tory Burch makes high-end clothing and accessories of the sort that royalty would wear. A cocktail dress can set you back around $500 and a handbag runs about the same. It's cheaper than Kors, but pretty close to in line with Kate Spade. It's pricing that's worked well for Spade, with comparable-store sales rising 30% in the company's fourth quarter.
Style.com has described Tory Burch's look as "Upper East Side preppy goes to Palm Beach, with a sixties cocktail-party twist." The fact that Burch is cheaper than Kors isn't going to make Kors feel any better when Burch gets the capital to expand. What matters is what's at the top of the style lists, and Tory Burch is vying for a top spot.
Right now, Kors and Kate Spade have the clear distribution advantage. Michael Kors has almost 400 locations, Kate Spade has over 200, and Tory Burch has just over 100 locations. One of the obvious things holding Tory Burch back is the lack of easy cash. The company is currently backed by private capital, much of it cycled in after Ms. Burch and her husband divorced in 2012.
The future of Tory Burch
Ever since the couple finalized their split, rumors of an IPO have been floating around the street. As steam picks up for a potential J. Crew IPO, it fuels more talk surrounding Tory Burch. The company has generated solid revenue growth, surpassing $1 billion in 2013, according to reports.
That still pales in comparison to Kors and Spade, with Kors generating $1 billion in sales in its last quarter alone. Given her tumultuous back-and-forth with Mr. Burch -- he owned 28.3% of the company when the couple split -- it's no wonder that Ms. Burch is slow to open wide the doors of company ownership.
In an interview with Fortune last year, Burch highlighted the trials and tribulations she had been through in finding investors, and cautioned entrepreneurs against jumping in too quickly. Even with that caution, an IPO from Tory Burch seems inevitable.
That's going to spell trouble for Michael Kors and Kate Spade. Not "end of the world" trouble, but the increase in competition from a hot brand isn't going to make things easier for the established brands. For Kate Spade the pressure will be especially difficult, as the company is currently pushing to expand its Kate Spade Saturday line, which competes for entry-level fashionistas. Tory Burch has a bright future ahead of it and when it finally does IPO, Kors and Kate Spade are going to have to shield their eyes.
Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.