The decision comes just two years after Kate Spade introduced its Saturday stores, following in the footsteps of a number of high-end designers, including Dolce & Gabbana, Marc Jacobs and Missoni, that have created secondary lines in a race to woo younger shoppers.
But those lower-priced spin-offs, which often come with thinner profit margins, can dilute a brand’s cache and analysts say that’s bad news for higher-end brands looking to capitalize on their exclusivity. This could be the year, experts say, that retailers pull back on their lower-priced efforts and outlet stores and instead shift their attention back to their primary brands.
“A lot of brands in luxury are realizing that playing at the bottom doesn’t pay,” said Milton Pedraza, chief executive of the Luxury Institute, a New York-based research firm that focuses on wealthy consumers.
While lower-priced offshoots are nothing new — Donna Karen started DKNY in 1988 — the recent recession, coupled with an influx of millennial shoppers, have given way to a number of new secondary brands. Vera Wang created the line Simply Vera for Kohl’s months before the start of the Great Recession in 2007. Zac Posen and Alexander Wang followed two years later with Z Spoke and T by Alexander Wang, respectively.
“It’s something that became very en vogue” after the recession, Pedraza said. “A lot of Wall Street analysts, private equity firms and hedge funds were pushing these companies and egging them on. But now I think you’re seeing the consequences in lower margins and discounting.”
Pedraza points to Coach, the maker of handbags, as a cautionary tale.
“Look at Coach — they opened a bunch of outlet stores and they paid the price,” he said. “They are trying to go back up market now, but it’s not very easy.”
At Kate Spade, executives had hoped the Saturday line would reach a younger, less affluent demographic.
Leather wallets at Kate Spade Saturday, for example, range from about $95 to $120, whereas a similar wallet by Kate Spade New York retails for $228.
“I think they had some good successes with the brand but overall the business didn’t meet expectations as quickly as they wanted,” said Mary Ross Gilbert, a retail analyst at Imperial Capital, a Los Angeles-based investment bank.
During the third quarter of 2014, overall sales at Kate Spade rose 30 percent to $250.4 million even as the company posted a loss of $9.13 million.
All 19 Kate Spade Saturday stores are to close by the end of June, but executives said some items from that line will be sold at the company’s higher-end Kate Spade New York stores.
Jack Spade, the company’s 22-year-old men’s line, will also shutter all 12 locations but will continue to be sold online.
“This is a year where you eliminate the hobbies and you eliminate the non-essentials, and that’s exactly what Kate Spade is doing,” Pedraza said. “You’ll see a lot of brands backing away from that this year. You’ll see a lot fewer outlets, a lot of deemphasis on outlets on the part of luxury brands.”