Kate Spade's Got a Brand New Bag

On a recent afternoon Deborah Lloyd, creative director of Kate Spade New York, is wearing a knee-length dress in a black and white leopard print. A tulle petticoat with miniature pink rosettes winks from beneath the full skirt. Slingback heels complete a look that walks a seemingly effortless line between ladylike and sassy. "I think of Deborah as the best-dressed person on the subway," says Craig Leavitt, the company's chief executive officer.

Leavitt means that as a compliment. Lloyd, 46, has turned around Kate Spade by infusing it with her own quirky sensibility. A brand once best known for minimalist, angular handbags coveted by 40-year-old suburban moms today has a hipper take aimed at urban professionals between the ages of 26 and 36.

Sales have doubled to $185 million since Lloyd arrived three years ago, helping make Kate Spade the best performer of Liz Claiborne's (LIZ) collection of brands, which include Juicy Couture, Mexx Europe, and Lucky Brand. The handbag maker "trucks on with incredible year-over-year performance," Liz Claiborne CEO William L. McComb told analysts in mid-February.

In 2007 Lloyd got an unexpected call from a headhunter. At the time, she was executive vice-president of design at Gap's (GPS) Banana Republic division. After six years, she was feeling frustrated because the business was too large for her to control. Upon learning that Kate Spade might want her as its new design chief, Lloyd went straight to a store and saw a "sleeping beauty [that] needed a kiss of life."

Founded in 1993 by Mademoiselle editor Kate Spade and her husband Andy, the handbag maker quickly won a following by melding vibrant color with classic lines. The brand lost luster after Neiman Marcus Group bought majority control in 1999. Liz Claiborne acquired the company for $124 million in 2006, and the Spades left.

When Lloyd arrived at Kate Spade's Manhattan headquarters for her first day on the job, she was "panic-stricken" to discover her staff consisted largely of interns and that her design team had only one designer. A congratulatory bouquet arrived from Kate Spade, and she heard nothing more.

Lloyd and Leavitt, who previously helped run the Theory and Helmut Lang brands, devised a strategy that included bringing out more collections each year and expanding overseas, especially in China and Japan. They hired the Redscout branding firm, which undertook three months of consumer research, including photographing all the women it could find carrying Spade bags in New York and Los Angeles and putting together a collage that better identified the Kate Spade customer.

She was fun-loving, but neat and polished, says Redscout founder Jonah Disend. "She wants to be the most interesting person in the room. That was a call to action to [cater to] that desire." The Kate Spade name, the team also discovered, resonated enough to push beyond handbags into a broader line of apparel and jewelry.

Still, says Lloyd, "we are known as a handbag company. If we didn't get the handbags right, it wasn't going to work." When she first looked at Kate Spade bags Lloyd says she saw "icing" and little else. To make sure the purses weren't just about color, she layered in neutral tones and made them more feminine—flowers, bows—as well as practical. For example, she now makes sure carryalls have dedicated space for necessities like cell phones. And totes sold in Japan have been customized to accommodate the different-sized file folders used in that country.

She has also included a few conversation pieces, such as a clutch for the fall which resembles a piano keyboard. But most of her line marries fashion and function. Lloyd's rounded, strapped Essex Scout bag typifies that design aesthetic: Crossbody and hands-free, it can be worn biking or munching hors d'oeuvres at a cocktail party. It's selling briskly.

At Kate Spade, the British-born Lloyd drew on her experience at Burberry, where in 1997 she caught her boss's eye with a whimsical and hip take on the staid brand—including a miniskirt. "She had a new idea of what Burberry could be," says Rose Marie Bravo, then Burberry's CEO. "I thought, 'This is it!'"

Lloyd, who has a master's in fashion design from London's Royal College of Art, gets her inspiration from the vintage shopping excursions she squeezes into her business trips. She does much of her decision-making in Kate Spade's "inspiration room," a stark white cube with papered-over windows where the lack of color allows her to focus on fabrics and patterns being considered for new styles.

In late January she and her design team huddled in that sanctum to put together the company's Spring 2012 collection. Her vintage magazine tear sheets depicted happy-go-lucky brunettes of yesteryear. The Kate Spade woman will be globetrotting in 2012, Lloyd predicts, and the designer wants to outfit her for her travels, in witty patterns, from head-to-toe.

Lloyd and Leavitt have boosted marketing to a younger crowd with the requisite Facebook page, Twitter feed, and YouTube videos. They have added celebrity wattage in the person of actress Bryce Dallas Howard, of Spider-Man 3 and Twilight: Eclipse fame, who is now the face of Kate Spade. A new logo—the playing card spade—imparts an edgier feel.

While rivals added lower-priced goods during the recession, Lloyd and Leavitt held the line, continuing to sell bags for between $295 and $395. So far the gamble has made Kate Spade the most profitable of Liz Claiborne's core brands, says Mary Ross Gilbert, managing director of Imperial Capital. Liz Claiborne could use the help: it's lost money for the last 13 quarters. "What Deborah Lloyd has done for Kate Spade is [the] model they want to emulate for the other brands they have," Gilbert said.

The bottom line: Liz Claiborne has gotten a much needed boost from the makeover of Kate Spade, its best-performing unit.

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