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CNN PINNACLE

Profile of Kate Spade

Aired November 9, 2002 - 16:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(BEGIN VIDEO CLIP)
WILLOW BAY, HOST: What collection is displayed?

KATE SPADE, DESIGNER: We have a little bit of fall and holiday resort.

(END VIDEO CLIP)

(BEGIN VIDEOTAPE)

BAY (voice-over): With a little scotch tape and a couple of pieces of construction paper, Kate Spade designed the kind of bag she just couldn't find, ladylike, practical, classic but with a twist.

(on camera): You started with what, four, six shapes?

K. SPADE: Six styles, yes.

BAY: Six Shapes and they are still the foundation of...

K. SPADE: Of the collection.

BAY: ...a multimillion dollar business today.

ANDY SPADE, KATE SPADE'S HUSBAND: Yes.

BAY (voice-over): After nearly 10 years of thinking outside the bag, Kate and her husband, Andy, have built a $70 million global brand. So, what does all this add up to?

K. SPADE: A bigger business.

BAY: Staying ahead while staying afloat, with fashion designer Kate Spade on this edition of PINNACLE.

ANNOUNCER: This is PINNACLE with Willow Bay.

(COMMERCIAL BREAK)

BAY: In glamorous international big cities and in small towns across America, on the arms of women everywhere, you'll spot a now familiar logo. Look closely, you can read the name, Kate Spade. Today, those handbags are the centerpiece of a $70 million business, a global brand that includes shoes, stationery, luggage, men's accessories, and beauty products, a label that started with just a couple of purses. You started with what, four, six shapes?

K. SPADE: Six styles, yes.

BAY: Six shapes.

K. SPADE: Six shapes.

BAY: And they are still the foundation of...

K. SPADE: Of the collection.

BAY: ...a multimillion dollar business today.

K. SPADE: Yes.

BAY: In 1993, Kate Spade was an accessories editor at "Mademoiselle" magazine who couldn't find the bag she wanted to carry, stylist, practical, reasonably prices, so she quit and without a day of design training cut prototypes out of paper and scotch taped them together. Two good friends who would eventually become partners helped out, Pamela Bellsimotis (ph) and Elyse Arams (ph).

Those first bags were simply ladylike silhouettes in nylon, timeless not trendy, but at the last minute Kate thought they needed a little something extra so she attached her label to the outside of the bag in simple type, her first name, her then boyfriend Andy's last.

Her first orders were small but her retail customers were prestigious high-fashion stores Barney's, (UNINTELLIGIBLE), and Fred Segal. At $200 to $350, Kate Spade bags were a lot cheaper than Prada or Fendi, but no less fashionable. And, when a Kate Spade bag appeared in fashion industry Bible "Vogue" magazine, that's when the buzz really began. In 1996, Kate was named best new accessories talent by the Council of Fashion Designers of America.

K. SPADE: And to actually be in the same company as the other award winners this evening is truly a big thrill.

BAY: And named Accessories Designer of the Year in 1998. By now, Kate Spade was in business. Kate was in charge of design. Her now husband Andy heading marketing. The Spades realized early on that success was never just in the bag. But, in a carefully managed plan to grow the company, a slow but steady approach that's unique in the fashion business where the first to market often wins. Product development the Kate Spade way means Kate Spade's way.

K. SPADE: It wasn't smart enough.

A. SPADE: For example, Kate doesn't make belts because she never wears belts. Then some of the buyers would say well everyone's wearing belts right now and Kate would say well, I'm not.

K. SPADE: I think it would be hard to design something you don't understand.

A. SPADE: She doesn't understand, she doesn't feel for it because it would be an obvious, you know, category but it's just not as fun.

BAY: What she'd always found fun was writing notes, so in 1998, she gave stationery a try.

A. SPADE: It's funny because it was the second category that we went into after handbags and it was because I adored it. For me it was instinctual and I also thought it was an area that was pretty sleepy and that no one was paying attention to.

BAY: Next, a bolder venture, shoes. Kate spent a year thoroughly learning the business, even bumping the typical sample up a half a size so she could road test them herself. And, do you have a favorite.

K. SPADE: These, I absolutely adore. I just think they are the best.

BAY: Her first collection in 1999 was a small one.

K. SPADE: And that was delivered on my part in that I think entering a new category is very much how we started with the bags, six styles. You need to know what you're doing. You have to kind of get your feet wet, see what's getting a response, what's not, and I think if you throw out a big collection and it isn't successful, it might be hard to get people to come back.

BAY: And this past spring, Kate dipped her big toe into the $16 billion beauty business, this time with a partner, cosmetics giant Estee Lauder. Now, why in the world venture into that business?

K. SPADE: I absolutely adore all beauty products.

BAY: And you partnered with Estee Lauder.

K. SPADE: With Estee Lauder, which I think is important. It would be difficult to do on your own. You really need to ally yourself with someone that just has been in it, has worldwide distribution, worldwide knowledge of the category.

BAY: She may have had the partner but Kate micromanaged the entire development process.

K. SPADE: See it was well worth the thousand times that we went back to this price to readjust it. Readjust it. Readjust it. I mean really live with these products and we'd come back and we'd make changes and work with the technicians in terms of the texture and the perfume in terms of lower this, raise this.

BAY: Kate soaked in it, lathered it on and sniffed every last tube for nearly two years until she felt the line was ready.

K. SPADE: They were all the things that I knew I would want to use and how I wanted them to be, so it was easy again. It was like the paper. I knew exactly what I wanted it to be.

BAY: Industry sources estimate that Kate Spade bath and beauty currently sold in 250 stores in the U.S. is expected to generate as much as $10 million in sales in its first year. On the boards now, Kate Spade home.

K. SPADE: The sheets and the towels and, you know, matching things like wallpaper because we do develop all of our own fabric. Now a lot of that could be interpreted into wallpaper. It comes in smaller pieces, yes.

A. SPADE: Plates and cups and table tops. Kate is always collecting vintage or new.

BAY: So, what does this all this add up to?

K. SPADE: A bigger business.

BAY: A bigger business with the same two people at the top and 185 employees in house. How does it work personally to be building, growing, managing a very challenging and I'm sure a very stressful business together at home?

K. SPADE: I think it's easier now than it probably was because I think what we made the mistake of doing early on was taking every opportunity alone to talk about the business, at dinner, driving the car, you know at home brushing your teeth, as you're getting into bed, as you're waking up, and I think we made a conscious effort to not do that because I think it was just, you know, it would burn us out. But I think we're much better now at controlling that and making sure that we're not dominating our free time with the business.

BAY: Kate Spade's design for living when PINNACLE continues.

(COMMERCIAL BREAK)

BAY: Are you obsessed with details?

K. SPADE: Absolutely and I think that's why we're a great team because...

A. SPADE: I'm not.

BAY: You're not?

K. SPADE: No, he is so great at vision and coming up with great ideas that move things and you think God I wish I'd thought of that. But, I'm really good at you know doing this, and kind of you know executing and so it's -- and I get nervous if I'm kind of looking that far ahead and Andy gets bored, you know, looking too down at his feet so it's great.

A. SPADE: I can only measure a handle length 16 times.

BAY: Kate and Andy may bring different skills to the business but they speak in one voice when describing their brand.

A. SPADE: This represents everything that we need represented and Kate Spade is Kate. Kate grew up in Kansas City, Missouri. She brings a lot of tradition to it. I think there's a lot of classicism to what it is. Color is obviously something she's done since the beginning, so that's what makes it not just a classic.

K. SPADE: Right, distorted classic.

A. SPADE: Fun to it.

K. SPADE: I think just, I mean there are a lot of classics out there and I don't necessarily want another just basic one and if so, I already own it, so in order to make it a little more interesting, I think you have to distort it a little and make it new.

A. SPADE: More novel, yes.

K. SPADE: Yes, a little more novel and interesting. And then this little heel was inspired from the perfume bottle where you kind of think oh, I have to have that. I just have to have that. I don't know if I need it, but I have to have it.

A. SPADE: Something about it.

BAY: But long before there was a brand, there was a girl, Kate Brosnahan of Kansas City, Missouri, the fifth child in a family of six, part girl next door, part glamour puss.

K. SPADE: I really did like fashion and then I really thought I was very innovative. My mother was actually very good in encouraging me to dress however I wanted. My sisters would sometimes think oh my God, you let her buy that fuzzy leopard coat at that store. I thought, of course, I looked like Audrey Hepburn in this coat, you know.

BAY: Did you have fashion role models in your family, in your community?

K. SPADE: My mother was one and I thought she dressed beautifully and she also really, again, loved it. I mean you'd watch her get dressed and you know she really did like it a lot and I just thought, oh, and I remembered kind of watching and thinking I can't wait until I can do that. I want to paint my nails. I want to wear lipstick. I want to put my hair up in a hairdo, hence the hairdo. I don't think I thought I'd be in fashion though.

BAY: Now, what did you think you'd be when you grew up?

K. SPADE: Journalism. Actually, I never even thought I'd be you. I thought I'd be Holly Hunter from "Broadcast News," behind the scenes, running around really fast, paying attention to what needed to get done and that's what I thought. I mean I don't think I imagined -- I didn't grow up thinking oh I'm going to be a designer.

BAY: At Arizona State University in the early '80s, she met Andy when they were both working at the same clothing store. He was a triathlete and she was a non-athlete but she took up biking as a way to get close to him. It worked. Then in 1986, she went to New York with $7 in her pocket and landed a secretarial job at "Mademoiselle" Magazine. Andy followed soon after and got a job in advertising as a copywriter and while she was climbing the ladder at the magazine, he was winning awards and making a name for himself in the ad business. If you could describe what you brought to your clients, what you brought to their campaigns, what you brought to the ad agencies, what was it?

A. SPADE: I had had some great, great mentors. They said never be too clever, I mean, and make it believable and there's also something in wit, not being overly clever but wit. I always feel if you can take emotion without being really, really sappy, it's nice because a lot of things feel very stiff, even in the fashion world. I feel that a lot of the work I can't relate to. It's not accessible to me. It's either about privilege or about this aspirational lifestyle. I love the simplicity of someone holding hands. That to me is something I aspire to, trying to talk to people through their hearts.

BAY: All of which have proved great training for their own emerging brand. By 1996, the company was four times larger than when it started and Kate was struggling to manage it on her own. Feeling financial secure enough, Andy quit his job at the ad agency to become Kate Spade's full time CEO and creative director. Running the company and even creating a line of men's accessories, called Jack Spade, in 1999. Then, Andy got to work on Kate Spade's advertising, launching the company's first U.S. ad campaign.

A. SPADE: We had this set up and established what our point of view was early on.

BAY: And how do your ads do that?

A. SPADE: I think they do it by talking to people in a way that's very, very contemporary and how they live. I think there are always little moments within the ads. For me, it's how I grew up and it's what I know and I relate to.

BAY: Like Kate, Andy grew up in the Midwest too in Birmingham, Michigan, one of three boys, including his now famous comedian brother, David.

A. SPADE: When we had a family picture, my brother would be holding me in the back in a head lock, you know, and raising my head in the middle of the picture, and we just in our last campaign took some of those pictures. Tell the story about a woman whose name is Tennessee who moved to New York. She's graduated from NYU Film School and she's invited her parents up to New York. Here they try to visit the gallery but the boys are fighting.

BAY: Just doing are supposed to be doing.

A. SPADE: They do what boys do. They keep doing it in all of these. For us, we felt that creating a real situation in a magazine like that will make people say, hey you know what I can do that or I relate to that. The son takes them to his favorite record store. It's in the East Village so he's listening to some (UNINTELLIGIBLE) music or something. Whether they did it or didn't they can understand it. This is just the end of the trip the family got one photo of all of them together standing on the bridge.

BAY: At Central Park, right?

A. SPADE: Yes, in Central Park. It's a great backdrop.

K. SPADE: Great.

A. SPADE: It's beautiful there.

BAY: As with most things Kate Spade's, their low-key style got a big reaction. In December of 2001, "TIME" magazine put Kate Spade's ads, along with big timers, IBM and Nike on a list of the top ten ad campaigns in the country; growth opportunities and growing pains when PINNACLE CONTINUES.

(COMMERCIAL BREAK)

BAY: Is it true that you give employees Emily Post's "Etiquette?"

K. SPADE: We do and not so much as something to kind of you know beat them over the head with like this but I think it's a good idea. It's good reference for them.

A. SPADE: It also sets a tone when they come in because they're thinking about other people, think about these folks.

K. SPADE: It's a good reference.

A. SPADE: It's common sense is what it is.

K. SPADE: Yes.

BAY: Think about these things meaning think about what it means to be cordial and...

A. SPADE: Gracious and somewhat polite.

K. SPADE: Professional.

A. SPADE: And professional. There are business situations that you have to handle. They're very tough ones but you can try to do it in a professional way.

BAY: Nice manners at the office, slow but steady growth.

A. SPADE: Group, this is the only sample that's arrived, so far.

BAY: The perfect thank-you note. Down to earth advertising, their traditional Midwestern values are rare in the fast-paced fashion world and those same values have influenced the way Kate and Andy, along with their two original partners, finance the company's growth. They never borrowed a cent, funding the company with their own savings. K. SPADE: It was very purposeful to not take money even from family or even from friends, and certainly never from an investor.

BAY: Why?

K. SPADE: I thought that it would be more nerve wracking, I mean really, and I think we all agreed, more I think I was more nervous about it.

A. SPADE: Kate's personality doesn't lend itself to that.

K. SPADE: To owing money.

A. SPADE: You know having the obligation to them to meet a deadline, to pay the money back. We were able to do it without that, which was wonderful because we didn't feel the pressure. We could lose our own.

K. SPADE: Right.

A. SPADE: We didn't mind that.

BAY: In 1999, Kate and Andy sold 56 percent of Kate Spade to Neiman Marcus for more than $33 million. What they got in the deal was the financial and marketing expertise of the bigger company.

A. SPADE: We really like them. We had worked with them. We met with them and we felt very comfortable with them and that was very important.

K. SPADE: And it's been great. I mean it has been. I think at the beginning people say well, honeymoon phase.

BAY: How has it been great? What's been great about it? What worked with the partnership?

K. SPADE: They were pretty clear up front that they did not want to come in and run this business day-to-day.

BAY: Which is good because you did?

K. SPADE: Because we did, absolutely.

A. SPADE: We wanted to operate.

K. SPADE: What they have done is they've been a great ear. I think they've been great at giving advice in terms of our retail expansion. It was more of a partnership, the idea of working with people instead of necessarily four people. You know I think it's probably easier for us.

BAY: Today, Kate Spade is a $70 million company with plenty of muscle to fuel its growth and a brand that's on track to become a classic. But popularity comes at a price. Yes, these are the hottest logos in the fashion world, Prada, Gucci, Christian Dior, and Kate Spade, only this isn't Madison Avenue or the Champs d'Elysees. This is Canal Street in New York City and these aren't the real thing, they're knock-offs.

K. SPADE: You know at one point Andy and I might have thought that was very funny to think that that would happen, that you would be, you know knocked off. How funny, oh wouldn't that be funny if you ever got so big that that would happen.

BAY: Not so funny anymore. For every Kate Spade bag sold at a store, such as Neiman Marcus, they believe there's one counterfeit sold on the black market. It's just one of the challenges the company faces as the brand becomes ever more popular.

K. SPADE: It has your name on it and, you know, your design but it's with the worst materials and they may not know that it's not authentic and they're thinking oh, is that the quality of a Kate Spade bag. I saw the most horrible bag and I think that that to me is appalling.

BAY: It has the potential to really damage the identity of the brand that you spend every waking hour preserving.

K. SPADE: Right. I mean you worked hard to kind of create something that was new and interesting, didn't exist, and then suddenly you see it on the street like that's not ours.

BAY: So, what are you doing about it? What can you do about it?

K. SPADE: We have attorneys that are working on it very hard and we have private investigators. We work closely with the police department. We work closely with the Customs Department so that when they come into the country, and then you also work with other designers that, you know, are also in the same boat.

A. SPADE: Beyond that, we just have to keep designing. We just have to keep moving and designing and changing and evolving.

BAY: Another thing they've done is to hire Barbara Colson, former head of the International Anti-Counterfeiting Coalition. The new senior VP and general counsel will help lead their anti-piracy efforts and doing all that not as a tiny start-up but as a growing player in the industry.

But, playing in the big leagues is tough, particularly in the fashion business where today's trend is already yesterday's news. Their latest challenge, fashion insiders say the rage over logos is dimming. Fashion may turn away from the interlocking seas and yes, even that simple little black and white label. But, Kate and Andy say they're not too worried. They never wanted to be just a flash in the pan. When you think back to those early days, when you were starting out with a couple of handbags, what was the original vision?

K. SPADE: I think that it's probably the same vision we have right now, which is to kind of to hopefully create interesting and also enduring accessories.

BAY: Designer Kate Spade on this edition of PINNACLE.

(END VIDEOTAPE)

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