Warren Buffet has a “circle of competence” theory; in other words, invest in what you know. For me, and likely many of you, that means retail companies. Call me crazy, but it’s just easier to understand the business of a clothing store that I frequent than a robotics company. That’s why I love writing about the intersection of business and retail; I find it satisfying to understand the business behind where I shop. So to expand our circle of competence, let’s chat about the reasons C. Wonder, Coach, and Stuart Weitzman have been in the news this week.

C. Wonder Closes Shop

C. Wonder suddenly closed for business yesterday. The retailer announced all 11 remaining stores are closing in the next few weeks, and its 100 corporate employees already cleared out their desks.

c. wonder closes stores
RIP C. Wonder store in New York (source: Business Insider)

The company was founded in 2011 by Chris Burch (Tory’s ex), and he was actually sued by Tory for copying her styles.

Although the company had been struggling recently, the sudden close is a shock to many. Less than two years ago, Chris Burch sold his 10% stake in the company to Fidelity for $35 million, and planned to expand to 50 stores in 2014. That means that in less than a year, the company went from a value of $350 million ($35 million divided by 10%) to possibly worthless.

I guess this goes to show how fickle retail can be. To quote Heidi Klum, “One day you’re in, and the next day you’re out.”

Coach Buys Stuart Weitzman

Coach (COH) has also been struggling recently, but unlike C. Wonder, it’s attempting to solve the issue through expansion. Yesterday, Coach announced that it is acquiring Stuart Weitzman for $570 million.

Although Coach was all the rage when I was in middle school, the brand has lost its luster in the face of similarly priced bags from Kate Spade and Michael Kors. As a result, Coach has had five straight quarters of declining sales, with a 24% drop last quarter for the sales of North American stores open at least a year.

Coach buys Stuart Weitzman
Side note: Did anyone else have one of these rainbow Coach bags? I’m silently judging my 14 year old self…

Coach is now attempting a “transformation strategy,” which involves expanding its product mix and adding more expensive items. That’s where the Stuart Weitzman acquisition comes in. Coach likely thought the addition of Stuart Weitzman shoes would expand their offerings, and that they might be able to use Stuart Weitzman’s shoe facilities for its own brand of shoes. In contrast to Coach’s declining growth, Stuart Weitzman has been growing steadily for the past five years and closed $300 million in sales in 2014.

While I don’t know Coach’s secret strategy, I don’t think the deal makes much sense. Coach already sells shoes, which are priced similarly to Stuart Weitzman’s. So now Coach will be selling two sets of shoes that compete with each other, which may reduce their revenues. Plus, shoppers that think Stuart Weitzman is a more prestigious brand than Coach may feel the former’s brand is tainted by Coach and buy alternative luxury shoes.

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