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New Horizons for Kate Spade

NEW YORK — As accessories firm Kate Spade approaches its 10th year in business, the company is plotting a series of moves to become more of a lifestyle brand. <br><br>"We are definitely in growth mode," said designer Kate Spade. "But we are...

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Illustrator Maira Kallman collaborated on a new Kate Spade collection for spring.

Robert Mitra and Thomas Iannaccone

NEW YORK — As accessories firm Kate Spade approaches its 10th year in business, the company is plotting a series of moves to become more of a lifestyle brand.

“We are definitely in growth mode,” said designer Kate Spade. “But we are growing by adding product categories that we have a feel for and that make sense for us.”

The handbag firm Spade founded with her husband, Andy, on a shoestring in 1993 now has total sales of about $70 million, and despite a tough retail climate, company executives feel the brand has the potential to achieve at least $100 million annually.

Here are some of the initiatives in development:

A new Kate Spade store in the Georgetown area of Washington, D.C., is set to open in the spring of 2003, bringing its store count to 10, and the company is scouting additional locations.

A major expansion push has just begun in Asia, with both wholesale and retail plans.

Kate Spade home products are currently in development and will make their debut in 2004.

The Spades have a deal with Simon & Schuster for a series of three style books that will hit store shelves in 2004.

The company is aggressively going after its many imitators through stepped-up anticounterfeiting efforts.

Kate Spade beauty products, produced through a licensing deal with Estée Lauder, have just begun to reach stores.

In a wide-ranging interview recently at the company’s headquarters on 25th Street here, the Spades and other company executives talked about what has driven their business over the last nine years, as well as the new directions they are forging.

The company’s story is well known. Spade, a former accessories editor, found quick success in the mid-Nineties with her whimsical nylon bags, which were scooped up by fashionistas and style setters. Distribution spread quickly to stores such as Saks Fifth Avenue, Bloomingdale’s and Neiman Marcus. In a somewhat unusual arrangement in the fashion world, a majority stake in Kate Spade was purchased by The Neiman Marcus Group in 1999, and Spade then began to hire more senior executives, branch into new categories and add licenses including shoes and eyewear.

In recent times, however, the company’s sales have been a little challenging. Neiman’s said in financial releases that Kate Spade sales were soft in both the third and fourth quarter this year. In the fiscal year ended in August, 2002, sales in Neiman’s Brand Development division, which includes Kate Spade and cosmetics brand Laura Mercier, were $71.1 million, compared with $72.8 million in the fiscal 2001 year. In addition, this division had an operating loss of $19 million this year, compared with an operating loss in 2001 of $8.7 million. Neiman’s attributed the loss in 2002 in part to a decline in earnings at Spade as well as a write-down of assets for three Kate Spade stores.

Nonetheless, company executives are upbeat about the future of the business and feel the brand has plenty of room to grow. They state clearly that Neiman’s does not pressure them to expand at a certain pace, but that their developments have come naturally.

“Neiman’s understands the importance of brands and we both see this as a long-term relationship,” said Andy Spade, whose official title is creative director and chief executive officer.

Although the Spades are still at the company’s helm, new executives have been brought in to oversee the international business as well as the counterfeiting issue. And the Spades said they are currently looking for someone to oversee the firm’s budding retail operations.

Fighting counterfeiting, a key initiative for the company, is being tackled head on by Barbara Kolsun, the firm’s new in-house attorney. A former attorney at Calvin Klein Jeanswear and WestPoint Stevens, Kolsun speaks passionately about this issue and said she has already begun to put a plan in motion to combat counterfeiting.

“Many people don’t really understand the problem when it comes to counterfeiting,” she said. “People need to know that this is a crime, that it’s stealing.”

Robin Marino, Spade’s president and chief operating officer, said: “The city is being robbed by tax revenue that is not being paid. We have a huge budget shortfall now, and yet there is so much money being lost.”

Kolsun has already contacted mall owners such as Simon Properties to talk about what can be done about tenants who sell counterfeit products, and she is also collaborating with other brands such as Prada, Gucci and Coach.

On the international front, Kate Spade will kick off its Asian expansion with the opening of its first freestanding boutiques in both the Philippines and Hong Kong this month. Spade already has stores and wholesale distribution in Japan, and it has signed distribution agreements with two Asian firms: Globalluxe and Store Specialist Inc. to facilitate its global expansion. Globalluxe plans to bring Kate Spade into Korea and Taiwan in 2003 and to China and Singapore in 2004, while SSI intends to open three additional boutiques as well as in-store shops in the Philippines in the next three years.

In addition, under its existing agreement with Japanese firm Sanie International Co. Ltd., a new store is planned for Tokyo in the spring of 2003, which will bring its store count there to five. International business now accounts for about 15 percent of estimated total sales, said Marino, and she expects that number to grow to about 18 to 20 percent.

Andy Spade said Europe is another area targeted for growth. The brand’s distribution in Europe is currently very limited, and the firm expects to expand its presence there in coming years.

In the U.S., Spade’s wholesale distribution has remained at about 300 stores, primarily big-name department stores. As the brand has evolved, so have the handbags, which now feature a wide range of fabrics, including leather and canvas, as well as straw and wicker. Many of the spring items are in bright colors such as red, orange and pink, and, true to form, a number of items have details such as leather flowers and sayings such as “potato, straw hat and seashells.” Prices for the handbags have remained fairly stable with the retail range from about $150 to $500.

Spring will also see the debut of products from a collaboration between Spade and illustrator Maira Kallman, which includes whimsical canvas bags and rain items with illustrations. The two met when Kallman painted a picture of Spade’s dog, Henry, and they were soon inspired to make a line of raincoats, which led to the collaboration. Retail prices for this line range from $60 for a cosmetics case to $395 for a raincoat.

In addition to handbags, Spade now makes luggage, paper products and small leather goods, and also has four licenses: eyewear, beauty, shoes and home. The licensed business now accounts for about 25 percent of sales, but the Spades are not interested in plastering the company across a host of categories.

“We have never wanted to go into categories that couldn’t stand on their own,” said Kate Spade. “The collections have to have their own legs.”

Many people have urged the Spades to enter the apparel arena, but the couple has little interest in making clothes, due in part to an already overcrowded market, they said.

Jewelry, however, is a different story. Kate, who often wears oversized necklaces and big rings, professes a love for jewelry and indicated that Kate Spade jewelry may be on the horizon. “We are not saying no to jewelry, and it’s something that is on our radar screen,” she noted.

Retail is another area where Kate Spade is boosting its presence. Although it didn’t open any new company-owned stores this year, Andy Spade said the stores have performed well for the company, and he feels the firm has the potential to open between three and five new stores a year going forward.

And, in a completely new direction, it won’t be long before books by Kate and Andy Spade are on the bookshelf. The trio of books will come out in 2004, and will likely be illustrated and informational and have a playful tone, said Kate Spade.

“We are not going to tell people what to do,” she said. “We want to offer ideas and show a new way of looking at things.”

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