Dive Brief:

• Luxury retailers Coach, Michael Kors and other unnamed overseas companies are mulling bids on handbag and accessories retailer Kate Spade & Co., sources told Bloomberg.

• Deliberations are ongoing and no final decisions have been made, the sources said. Kate Spade has plans for a formal auction this month. Inquiries from Retail Dive to Coach and Michael Kors were not immediately returned. A spokesperson from Kate Spade told Retail Dive that as a policy, the company doesn't comment on industry rumors or speculation.

• Hedge Fund Caerus Investors in November sent a letter to Kate Spade’s board urging a sale, and, separately, activist investor Jana Partners that month acquired 1.07 million shares of Kate Spade, according to a filing with the Securities and Exchange Commission. 

Dive Insight:

Kate Spade took a swift downturn earlier this year when the company went from reporting double-digit same-store sales increases to lowering its full year forecast. Executives in August said Kate Spade would endeavor to improve outlet sales by leveraging flash sales to move inventory online, in a sign that the embattled model has its place in a larger retail context. CEO Craig Leavitt told analysts on a conference call at the time that the company would focus on the full-price customer, a strategy he says is working.

“That’s where we saw gross margin dollars, solid expansion, a higher penetration of full-price sales in our full-price channels and we've seen in previous quarters this was really in the full-price channel," Leavitt said. "The challenge ... was really on that sale-oriented customer. And capturing the sales from that particular consumer who is inundated with a promotional landscape, in general, was an additional learning that we had during this quarter.”

But investors have not been patient. In November, shareholders urged the handbag retailer to consider a sale, and its brand has since piqued the interest of at least six bidders, Bloomberg reports.

Struggles by Coach and Michael Kors have recently fueled speculation that those brands might merge with other companies. Recent earnings reports show both companies exhibit promising new signs of life after heavy discounting took its toll on both margins and brand equity, but the two giants still have trouble gaining traction with millennial consumers. That’s in part because millennials are less enamored with brands and disinterested in the traditional concept of an “it” bag.

Rumored takeover discussions between Coach and smaller luxury fashion house Burberry fizzled at the end of the year, after Burberry reportedly rejected Coach's overtures time and again. The dilution of the Coach brand, due to constant discounting and its reliance on off-price sales, created an inability for the company to demand top dollar. In an effort to bolster the brand, CEO Victor Luis has pulled out of hundreds of U.S. department stores. Coach is also looking to diversify its brand, considering its purchase last year of women's shoemaker Stuart Weitzman for $574 million has begun to pay off.