By  on May 14, 2008

Kate Spade is courting Los Angeles shoppers for the first time with its own stores, part of an ambitious agenda to almost double the accessories brand's retail doors this year.
Liz Claiborne Inc.-owned Kate Spade's Southern California retail initiative kicked off May 2 with the opening of its 1,100-square-foot store at Caruso Affiliated's new Americana at Brand lifestyle center in Glendale. That store is to be followed this month by launches at the Westfield Century City and The Oaks at Thousand Oaks malls, and on Colorado Boulevard in Pasadena.

"Because of the shopping patterns in the West Coast, a number of neighborhood or micromarket stores help support the customer base there," said Kate Spade co-president Craig Leavitt. "There is an opportunity for a relatively large number of stores in that marketplace and that is why we are seeing this flurry of activity in L.A. that will expand to other places in the West Coast."

Revving up Kate Spade by spreading its retail enterprise is a risky move in a weakened economy that has hit Southern California especially hard. But Leavitt contended Kate Spade will win over consumers with relevant accessories that don't have price tags rivaling mortgage payments.

"In this type of economy, it becomes a market share game," he said. "While the pie may be getting smaller for the short term, we think that it is important to carve out additional market share, and we think that is through the great product."

Retail has become an emphasis for Kate Spade, which endured a shake-up of top executives after Claiborne purchased it for $124 million in December 2006. Last year, Kate and Andy Spade, former designer and ceo, respectively, left the company they started 15 years ago.

Claiborne hired Deborah Lloyd, who had been Banana Republic's executive vice president of product design and development, and Leavitt, who was president of global retail operations at Theory, to be co-presidents, reporting to Claiborne ceo William L. McComb. The two have set out to reinvigorate Kate Spade's merchandise, often criticized for design stagnation in the midst of an accessories boom, and quickly build its retail portfolio.

"What you will see for fall and beyond is an evolution of the product that lends some additional sophistication, but at the same time reflects the whimsical heritage of the brand," Leavitt said.Kate Spade is expected to expand to about 50 stores this year from its current total of 26 — and plans at least 40 more by 2010. The brand had four California units — Fashion Island Center in Newport Beach, Stanford Shopping Center in Palo Alto and two in San Francisco — before launching at Americana at Brand, and Leavitt indicated that its West Coast presence would be bolstered soon with locations in the San Diego region, Northern California and Portland, Ore.

Co-tenants, demographics and space availability are crucial factors in determining where Kate Spade places stores, Leavitt said. The company scouts malls or lifestyle centers and streets for retailers that attract customers, notably professional women and non-working women from the 20s to 40-plus with hefty disposable incomes who are good candidates to become devotees.

"Our strategy is to develop stores both in the malls and on the street," he said. "It is really a way to balance our presentation in the marketplace."

Kate Spade's West Coast stores are laboratories for elements of a redesign that is scheduled to roll out in earnest starting next spring. In general, the stores will be more intimate, averaging 1,500 to 1,700 square feet compared with 2,300 square feet previously, encourage interactivity with lower shelving and fewer items under glass, and have fitting rooms for the anticipated launch of Kate Spade apparel collections in 2009.

"What you are seeing is the beginning of the process of store redesign," Leavitt said. "Accessible is a key word because we are a company that produces accessible luxury products and that is a key part of that [redesign]. We want to build stores that provide us an opportunity to present additional categories as we layer them on."

In fiscal 2007, Liz Claiborne reported Kate Spade's sales averaged $631 a square foot, which Leavitt said is "pretty consistent to where we have been trending" this year. However, he forecast "significant increases in productivity" as Kate Spade's products progress and the size of its stores shrinks.

Handbags constitute more than half of sales at Kate Spade locations, where the average ticket is in the $250 to $350 range, and are trailed by footwear and small leather goods. About 60 percent of Kate Spade sales now come from its stores, with the rest from wholesaling to retailers such as Nordstrom and Bloomingdale's. Kate Spade generated $90.5 million in revenues last year, making it the smallest member of Claiborne's family of direct brands that includes Juicy Couture, Lucky Brand and Mexx.

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