Kate Spade New York: Integrating Social Purpose into Core Business Operations

Introduction

The Kate Spade New York story began in 1993, when Kate Brosnahan Spade set out to design the perfect handbag.1 The design and colourful palettes were well received by both clients and fashion editors, and the brand was able to open its first shop in 1996 in New York City. After it was acquired by Liz Claiborne, Inc. in 2007, the brand expanded its product portfolio to include clothing, jewellery, bedding, fragrance, leg-wear, and more. In 2017, Kate Spade New York was acquired by Tapestry, Inc., and is now part of the Tapestry house of luxury brands. Its designs are sold in more than 450 locations worldwide, with 140 retail shops and outlet stores across the United States, and more than 175 shops internationally.2

In 2013, Kate Spade New York founded on purpose, an innovative approach designed to integrate Kate Spade New York’s social commitment to empowering women into its core business operations. Through the on purpose initiative, Kate Spade New York financed to build the for-profit social enterprise Abahizi Dushyigikirane, Ltd. (ADC) in Rwanda.

Pain Points in the Ecosystem

Labour rights have been an increasingly important issue in the global apparel industry. As a result, ethical fashion projects have gained enormous global attention among international organizations, human and labour rights activists, states, and consumers. Prior to founding on purpose, Kate Spade New York made an early effort to contribute to this ethical fashion movement by focusing its social impact strategy on female empowerment, while aligning with and sourcing from large-scale non-profits, who in turn worked with women in post-conflict countries. However, this CSR -style project targeting women’s economic empowerment largely failed. The support that women received from Kate Spade New York was often strongly dependent on the capacities of another organization’s abilities in the ecosystem, making it a very inefficient and financially unsustainable mode.

In order to achieve a longer lasting and self-sustaining model, Kate Spade New York decided to shift its focus away from the common approach of making a donation for each product or partnering with large-scale non-profits towards a social enterprise model of empowerment. By building a new business with female entrepreneurs in Rwanda, Kate Spade New York addressed the pain points of a specific group of women in the global apparel industry.

Women in Rwanda, as in many poverty-affected countries, face many barriers to greater financial autonomy and decision-making power. While they typically lack the financial capacities and leadership skills needed for running a business, they are also affected by other issues, such as the lack of familial support and low confidence. Employment opportunities on the local labour market are frequently unsuitable as they do not allow for these vulnerabilities, and local institutional systems lack the capacity to address them sufficiently.

Business Strategy

The social enterprise Abahizi Dushyigikirane, Ltd. (Abahizi Rwanda) was established by Kate Spade New York in 2013 through the on purpose initiative. Started in the Rwandan village of Masoro, the company is employee-owned and governed by a local board of directors. Studies show that shared ownership brings about positive results by creating feelings of responsibility and having a personal stake in the business. The transfer of ownership to women was thus targeted at strengthening their personal impact on the business, encouraging them to participate, and empowering them economically and emotionally—both being equally important.

The mission of Abahizi Rwanda is to produce high-quality products for the global fashion industry while empowering women to carry positive change into their communities. While Kate Spade New York was essential in building capacity in the early years, the business has been designed to be able to take on other clients in the future, and to encourage buyer diversification as a ‘sustainable path for long-term financial growth’.3

The enterprise is committed to creating a supportive work environment for women and addressing specific needs by investing in employee well-being through empowerment and training programmes. To make the enterprise sustainable and address relevant needs of women, Kate Spade New York, in cooperation with Georgetown University, used its access to assess which additional factors are crucial for women in Rwanda. Their study which ran from 2015–16, found that improving the social status and overall position of women would reduce factors that make women vulnerable to external shocks, such as single motherhood, hunger, and sickness.

Abahizi Rwanda is owned by the workforce in equal shares through their membership of the Masoro Community Vendor Capability Cooperative (MAVIC); membership is restricted to ADC employees.

The world of apparel supply chains involves both low- and high-level skills and capabilities. Low-skill-level firms exercise simple assembly tasks, while high-level tasks, such as design, production planning, and marketing are generally performed elsewhere. While organizations in more advanced markets usually perform ‘full-package’ activities, those in less developed markets may only perform tasks that add less value, such as assembly, sewing, etc.

The dynamics of global value chains (GVCs) thus play a significant role in the context of Abahizi Rwanda. The ability to leverage the benefits of value chains for developing countries often depends on whether the operations take place at the higher or lower level (of added value) of the value chain.4 Whereas high-end and intangible production activities, such as marketing in post-fabrication stages, are likely to happen in developed countries, less developed economies tend to engage in low-end and tangible production activities, yielding less value-added to the product and thus lower income. The challenge for global apparel suppliers is to push their activities upwards and distribute more benefits from GVCs to poorer nations.

Most of Kate Spade New York’s suppliers are full-package and are thus able to lift Abahizi Rwanda artisans to higher levels within the global value chain. To achieve this shift from simple assembly to higher value-adding processes, additional efforts and investments in training and skills are made. Upward movement might be pushed through direct exposure to multinational corporations to expose artisans to best practices in fields such as logistics, production, and human resources.

Kate Spade New York has retained its quality criteria and expects Abahizi Rwanda-produced handbags to meet the brand’s expectations. The active engagement of Abahizi Rwanda in the production process is one method of achieving the improvement in skills required to meet those criteria.

Abahizi Rwanda is primarily focused on ‘cut and make’ supplier tasks. Abahizi manufactures and embellishes its handbags in accordance with customer specifications, while using buyer-provided materials. The quality principles demand consistent supply of fine leather, fabric, fasteners, and other components that could not be sourced in Africa and are thus being brought in from vendors in China and Korea. By training Abahizi in high-quality trades, the initiative enables the artisans to produce for other fashion suppliers too, making the social enterprise more independent and self-sufficient.

The overall product development and production cycle of mid-luxury handbags can take up to a year. Kate Spade New York involves Abahizi in the design process and sends the ‘tech packs’—design specifications and instructions—to Masoro for the artisans to make initial samples.

Once those are reviewed and approved, the designers from New York send the final specifications, which Abahizi uses to create the final samples. Upon approval of the final samples, Kate Spade New York initiates orders for cutting, dyes, and raw materials, and Abahizi then starts the production. About five months after the receipt of the final specifications the bags are ready for sale.

Performance

The on purpose initiative contributes to creating human capital in three ways. One is the ownership structure, which establishes the artisans as owners of Abahizi Rwanda, while Kate Spade New York has the roles of social impact investor, client, and mentor.

The second contribution is the attempt to shift the women’s contributions up the value chain to make them reach potentially higher added-value and higher benefits from within the supply chains.

Finally, Kate Spade New York also ensures that the empowerment of women has an impact on different areas of the artisans’ lives, yielding spill-over effects across a larger spectrum of Masoro society, including improvements in child education and nutrition. For this purpose, the success of empowerment was measured by Georgetown University in 2016 according to financial, economic, social, and psychological metrics.

Financial Empowerment

The financial aspect of empowerment was assessed on the grounds of adequacy of compensation and spending power. The lowest artisan salary at Abahizi Rwanda is considerably higher than the median salary for the private sector—up to 40 per cent of the average compensation in Rwanda (Table 31.1).

Based on the overall living standards in Masoro, this salary enabled a ‘decent life’ for one adult plus one school-aged child, which included being able to save.

As intended by Kate Spade New York, the financial empowerment of women through employment at the on purpose supplier was shown to have positive spill-over effects on the community of Masoro, where women were able to contribute to their households. Strengthening human capital, as well as designing and supporting institutions, has helped to catalyse further development within poorer societies. Future results from the employment at an ‘on purpose’ supplier are thus expected to be seen through overall higher rates of educational attainment and a total growth of social participation of women, not only of those working at ADC.

Social and Psychological Empowerment

The Georgetown University study also found that artisans of Abahizi Rwanda were showing higher levels of self-confidence than others in the Masoro community. In particular, their subjective social status—how they viewed their social standing in comparison with their neighbours and other community members—had been positively affected. The researchers tested the artisans and a group of randomly chosen members of the local community (not associated with ADC) using the MacArthur Scale of Subjective Social Status. All participants evaluated their past social standing as very low. However, artisans ranked their current and future social status considerably higher than did the other members of the community.

Several factors are thought to have contributed to this difference between Abahizi Rwanda workers and other members of the community, amongst the most important being a caring management, the opportunity to learn and progress, and growing self-esteem through economic and social empowerment. In particular, opportunities to progress and for self-development were found to be important in the Rwandan context. The empowerment of women regarding their freedom of decision-making in both personal and family finances was also shown to improve compared with other Masoro women.

Finally, building new networks within the global market and forming relationships with companies in the supply chain of global buyers other than Kate Spade New York was seen as evidence of further social empowerment of the artisans.

Business Performance

As the on purpose model was specifically designed as a mutual project, and not just a social impact project, Kate Spade New York expected both good business performance and the self-sustainability of Abahizi Rwanda. And, indeed, the production period for 31 March 2017 was able to generate positive net income results.

To make Abahizi Rwanda even more competitive in the global market without compromising its quality and learning curve has been presented as a high priority for Kate Spade New York in the coming years. The strategy for this is to achieve price competitiveness by increasing the output with a modest increase in headcount. Management aspires to achieve this by relying heavily on the benefits of increased worker experience and continuous staff training.

Prognosis

Over the last five years, Kate Spade New York has put a lot of effort into the on purpose initiative, but has also received a lot in return. Since the fashion industry is under strong international scrutiny, involving not only activists and non-profit organizations, but also consumers, programmes such as the one in Rwanda can yield invaluable reputational benefits for a brand.

Abahizi Rwanda has overcome initial challenges and achieved crucial milestones. It has the capacity to improve further and to generate greater positive spill-over effects. This provides lessons for other businesses by showing that holistic human-capital assessments can yield great success in achieving higher employee well-being and work performance efficiency.

In the future, Kate Spade New York aims to make additional improvements to push Abahizi Rwanda’s growth and potential further. The brand is confident that it will be able to increase Abahizi Rwanda output to 16,000 units per production period, while decreasing costs through increased training and offering a broader scale of products. With these forecasts, Kate Spade New York aims to achieve the financial viability of Abahizi Rwanda and make the enterprise self-sustainable in the long term.

Abahizi Rwanda has some distinct competitive advantages that will help it realize its future goals. One is that the artisans have demonstrated their ability to be flexible and innovative in meeting the different needs and preferences of suppliers. Rwanda’s labour costs remain low compared with other garment-manufacturing countries such as China. And Abahizi Rwanda artisans possess skills in embroidery and sewing, which are closely linked to the local culture and which make Rwanda a strong base for fashion suppliers. Further steps include efforts towards improving Abahizi Rwanda’s client base and COACH, another Tapestry brand, producing in Rwanda.

___

Notes

1. Kate Spade & Company 2018, http://www.katespade.co.uk/uk/about-us/page/ aboutus.

2. Kate Spade & Company 2018, http://www.katespade.co.uk/uk/about-us/page/ aboutus.

3. http://www.katespade.co.uk/content/ebiz/shop/resources/images/additional-images/ 2018march/category-landing/onpurpose/impact_report_24.pdf.

4. Baldwin (2014).

Case Study Contributors

• Taryn Bird, Kate Spade

• Aida Hadzic, (formerly) University of Oxford

• Kate Roll, University of Oxford

• Judith C. Stroehle, University of Oxford

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