>> Luxury handbag maker Coach announcing Monday it's buying colorful and smaller rival Kate Spade, for nearly $2.5 billion dollars, in a move to gain a better foothold in the growing millennial market. Reuters retail analyst, Jharonne Martis.>> So Coach is one of those brands that has been in existence for a very long time, for over 70 years.
So they really have a loyal customer base, including from the older generation. Whereas Kate Spade appeals much better to the millennials. And this is huge right now, especially in the retail environment that has been very, very difficult. But also, the millennials right now make up the biggest portion of the US population, which is huge.
It's very important for any retailer to win over if they want to stay afloat right now.>> The news comes months after Kate Spade said it was exploring strategic options after investors urged the company to sell itself.>> They've been the top performer in terms of same-store sales, posting numbers, double-digit growth, as high as 30%.
However, this past quarter was the first time Kate Spade posted its only negative same store sale, at negative 2.4%. Which definitely surprised the entire market.>> While Coach had also been on the hunt to make a deal, as it hopes to turn around its business in a soft handbag sector marked by fierce competition and a drop in department store traffic.
>> So one of the things that Coach said on their conference call today is that they're actually gonna be cutting Kate Spade's online wholesale distribution. This means that only a limited amount of handbags will be available online. So as a Kate Spade customer, you will still be enticed to come into the store.
And this won't hurt Kate Spade's brand image. Because the merchandise won't be appearing everywhere in outlets, which only dilutes a luxury brand. Investors so far seem encouraged by the deal, shares of Kate Spade and Coach both rallying on the news.