NEW YORK, United States — In the mid-to-late 1990s, women in New York seemed to fall into two camps: those carrying Kate Spade's chic, black nylon bags and those desperate to do so. Founded in 1993 by designer Kate Spade, the company produced practical and comparatively affordable handbags, which possessed significant cachet thanks to its positioning in the fashion press as an "iconic American brand."

But by the turn of the new millennium, the company’s initial momentum proved difficult to sustain. As the decade continued, Kate Spade, once one of the most visible American accessories brands, headed inexorably towards the ignominy of irrelevance. In 2005, the brand, which then operated 19 retail stores and four outlets, recorded only $84 million dollars in net sales. In 2006, the brand’s eponymous founder elected to sell the company to Liz Claiborne Inc, now Fifth & Pacific.

Liz Claiborne’s motivation to buy was clear: “We feel there are substantial growth prospects,” Trudy Sullivan, president of Liz Claiborne Inc, said at the time, noting the opportunity “in both domestic and international wholesale accounts, as we optimise the penetration in upscale department and specialty stores.”

What Liz Claiborne didn’t predict was that growth of existing lines of business was only the beginning and that, less than a decade later, Kate Spade would financially underpin Fifth & Pacific, the surviving vestige of the now defunct Liz Claiborne.

Five years ago, the Kate Spade business achieved $126 million in net sales. "[Today] the guidance we have given is in the neighbourhood of $750 million to end this year," said Craig Leavitt, who took the reins as chief executive of Kate Spade New York in 2008. "We inherited a brand with great DNA and this rich heritage that had kind of just fallen off the radar, become a bit sleepy shall we say."

When Leavitt joined the company he and Deborah Lloyd, chief creative officer and president of Kate Spade New York, shared a belief that, as Lloyd put it, “the brand’s DNA was so much bigger than what was being done. [I remember] sitting at a table during the recession, trying to work out where we were going to go and what we were going to do. And we sat round and went ‘Yeah we could be a billion dollar brand, ok!”

“Today, we see a path, maybe between now and the end of 2016, to become a $2 billion brand in terms of retail footprint,” added Leavitt.

But success did not come overnight.

The first step for the company was defining its DNA and target consumer, on which they worked with brand development agency Red Scout. “[The Kate Spade woman] lives in a ten-floor walkup, but has champagne glasses. She doesn’t take hours doing all of her holiday cards perfectly, she has a glitter party with her friends,” said chief marketing officer Mary Beach.

"Our brand promise is to help our girl live an interesting life, to live her life in colour, in every sense of the word, it is not just about offering colour, it is about living life to the full," said Lloyd. "Whereas Michael Kors is jet set, Tory [Burch] is, you were born with a Tory Burch silver spoon, you know American aristocracy — [Kate Spade] is about encouraging our girl to live this colourful life."

"We are in that accessible luxury space, along with Marc by Marc Jacobs," added Leavitt. "It varies by product category — in apparel we look at people like Valentino Red, it is a broad selection because we are in different categories."

Indeed, having identified a clear positioning and target consumer, Kate Spade embarked on a deceptively simple, yet highly effective, three-step strategy for growth, starting first with product category expansion.

Product expansion

“The first thing was to develop a strategic roadmap,” said Leavitt. “It focused on a number of things, but most importantly it was about building a really diverse business model. Although we will always be a brand anchored in our handbag and small leather goods business, we recognised that we had the permission of the customer to go into a number of categories and create truly a lifestyle brand.”

“We started as a handbag brand, then we did jewellery, we had shoes and then we had sunglasses, watches; and then we thought: what else can we do?” recalled Lloyd.

An almost infinite amount, it would appear. In addition to bags, jewellery, shoes, sunglasses and watches, Kate Spade New York now produces a staggeringly broad and diverse selection of products, from fine china, glassware and other tabletop goods to tablet accessories, stationery and thermal coffee mugs to home decor, bridal accessories, fragrances, hosiery, denim and ready-to-wear. “With home we do special sort of pieces, but how do we get into her first New York apartment? Everything from the bedroom to the kitchen — cookery pieces — there is so much we could do that has the Kate Spade spirit. Colours of paint even, the possibilities are endless,” said Lloyd. “There are so many ways we can get into the girl’s life. How do we dress her off duty? When she is going to a wedding? When she is actually getting married? We have such a breadth of woman – it is looking after everything, from bridesmaids to mother of the bride.”

Kate Spade declined to break out the relative sales volumes of its various product categories, but according to Leavitt, “we expect that we will get to 30 percent penetration of our apparel business [as a proportion of our total sales this year]. When you think that we launched [apparel] four years ago, that is really meaningful.”

“[Apparel] gives us that true lifestyle status as a brand,” he continued. “Plus, the consumer shops more frequently for apparel than she does for handbags; she spends more time in store and she is more likely to buy across more product categories. Over the last twelve months our comparable sales per square foot have risen to north of $1225 a foot,” he added.

A multi-channel approach

“While we are rapidly growing our direct-to-consumer business, we are growing our wholesale channel at nearly the same rate,” said Leavitt, identifying the second key driver of the company’s growth: “a multichannel approach” to sales.

Whilst competitors have increasingly focused investment on expanding direct-to-consumer retail, “We believe that [a] really important part of our business is the opportunity for the consumer to shop wherever she wants to shop, and whenever she wants to shop,” said Leavitt.

“Kate Spade believes there is value and legitimacy in being represented in the best department stores and specialty stores around the world. Those merchants, those arbiters of taste believe our product is important to our consumer and we benefit from that,” he added.

Leavitt has also nurtured Kate Spade’s online presence. “It is really important to give our consumer the opportunity to engage wherever she wants, so e-commerce is extremely important. We have spent a lot of effort merging brand information and e-commerce on the website, so that our customer can learn about our brand, while she is looking to purchase our product. E-commerce penetration is in the neighbourhood of 20 percent of our overall direct-to-consumer business,” said Leavitt, “which is a very meaningful given the number of stores that we have.”

International expansion

The third and final key driver of Kate Spade’s success has been “the international growth opportunity,” said Leavitt. “We see a clear path to getting to a place where two thirds of our business is outside of the US. It’s the biggest growth opportunity that we have. Somewhere in the neighbourhood of 20 to 25 percent of our business is outside of North America today. We have a goal by the end of 2016 to raise retail [outside North America] to a third of our business and, long-term, to bring that to two-thirds.”

Indeed, despite economic downturns and slowing economies, impressively, the brand’s international growth remains robust. Kate Spade’s Japanese business, in particular, has experienced “nearly 20 percent year-on-year growth,” according to Leavitt.

“We also have meaningful business in China and big opportunities in South East Asia, in places like Hong Kong, Macau and Taiwan. Additionally, in Latin America, we launched a subsidiary two years ago, based in Brazil, distribution in the Middle East and now really a focus in Europe also,” he continued.

In keeping with its pragmatic, multi-channel approach, Kate Spade’s international retail expansion is a mixture of concessions, wholly owned and operated retail propositions and joint ventures. “Where we think it is appropriate and impactful we have a strategy of forming joint ventures with local operating partners. We can then provide clarity around how we communicate to the consumer, be clear about the brand proposition and take advantage of local partners and local operating expertise,” said Leavitt.

“At the end of our Q3 last year, we had a total of 93 stores that were directly owned and operated worldwide. And in our third quarter that we just completed, we had 196. I think that shows the incredible growth,” he continued. Indeed, it’s an enormous jump from 2005, the year Kate Spade was sold to Liz Claiborne, when the brand operated only 19 retail stores and four outlets.

Earlier this year, Kate Spade launched Kate Spade Saturday, a sister label, known for its bold designs and bright colours, that was first developed with Japanese consumers in mind. "We launched the brand first in Japan and then shortly thereafter launched [online] in the US. We are very pleased with our early results and think that that will be a meaningful growth opportunity for us in the years ahead," said Leavitt.

“Because this brand’s concept originated in Japan and we really wanted to make the brand global, we felt Tokyo was the perfect city to launch the brand,” said Ayako Yanagisawa, president of Kate Spade Japan, at the time. “I think Tokyo is a very interesting city for the fashion industry to try out a new brand. The market is mature enough to receive, and digest, and understand new creativity. There is also a wide age range of people who like fashion in this city,” she continued. “It can be a real showcase for the Asian market.”

Indeed, Kate Spade Saturday’s lower price point, Leavitt believes, gives it “the opportunity to appeal to a significantly broader consumer base, particularly in some of the emerging markets,” which will, no doubt, have to play a critical part in Kate Spade’s future growth.

“We have set a long-term goal of about $4 billion [in retail sales],” said Leavitt, “and we are confident that we have a pathway to that.”

Thus far Kate Spade New York has a admirable track record of managing its growth into new product categories, channels and markets without diluting the essence that gives it meaning in the minds of consumers. But how far can it go before stretching the brand too thin?

The financial incentive to launch new product lines, open new stores and enter new markets can be strong. But so are the accompanying risks.