Dive Brief:

• Rumored takeover discussions between upscale accessories retailer Coach and smaller luxury fashion house Burberry are now off after Burberry rejected Coach's overtures time and again, according to the Financial Times.

• Coach may have been able to kindle interest at Burberry had the company moved earlier, some sources said.

• Rumors of a potential deal have circulated since at least October, when Burberry shares spiked on the possibility of the two companies joining forces.

Dive Insight:

Burberry is struggling in the slowing luxury market, which has been hurt by a number of factors, including slowing demand in Asia. Analysts for months called for the upscale U.K. brand to appoint a more experienced executive to assist CEO Christopher Bailey, who is also the company’s chief creative officer: In July, Burberry tapped Marco Gobbetti, former chairman and CEO of French luxury brand Céline, to take up the CEO post starting next year.

Coach, by contrast, is on the rise. After diluting its brand (and with that its ability to demand top dollar) via constant discounting and its reliance on off-price sales, CEO Victor Luis has pulled out of hundreds of U.S. department stores. Coach also is looking to diversify its brand: Its purchase last year of women's shoemaker Stuart Weitzman for $574 million has already begun to pay off. 

A deal with Burberry would have created a group with a market value beyond $20 billion, according to the Financial Times, not only broadening Coach’s reach in more categories but also extending its geographic presence, considering the scope of Burberry’s global range. Burberry’s unblemished upscale profile also would have burnished Coach’s luxury halo.

"A merger would force other luxury brands to consider whether they need to add scale," Greg Portell, lead partner in the consumer and retail practice of global strategy and management consultantcy A.T. Kearney, told Retail Dive. "Scale could come in the form of lower overhead costs. More importantly, a combined company would be need to create scale in design and marketing capabilities. Without that advantage, a deal doesn't make sense creatively."

The end of the Coach/Burberry merger talks "will increase pressure on the companies to ignite revenue growth as the path to improved earnings," Portell added. "Regardless of a deal, luxury and design brands need to find profit growth or else they will find themselves attractive targets for outside investor pressure."

But Burberry, which enjoys a market value of £6.2 billion (about $7.9 million U.S.), has no debt, according to the Financial Times, and therefore can afford to be patient and wait for the changes that Gobbetti may have in store. Furthermore, a merger could create as many problems as it might fix for either company.

“A merger of Coach and Burberry would primarily be a merger of problems,” Exane BNP Paribas analyst Luca Solca said in a note in October. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability.”

Still, Portell says that there's a need for rigorous plans for growth as well as for cost containment. "Our advice to companies considering a similar combination would be to build revenue synergy plans with the same rigor as their cost program," he said. "Only by doing so will they be able to set a foundation for organic growth."