Power Couple

It's an appealing thought that a couple of kids from the heartland can start a company with just a good idea and a lot of moxie and turn it into a multimillion-dollar business -- yet preserve the iconoclastic spirit on which it was founded. Trouble is, in 2005, the sharks aren't just hanging on the wall. They're circling the waters, fighting for retail real estate, battling for brand share. The business is no longer the sleepy category the Spades entered in 1993. "The biggest challenge the company faces is the onslaught of competition, which is at least twice what it was four years ago," says Ron Frasch, vice chairman of Saks Fifth Avenue. Coach, for example, which competes in the same price range, had sales last year of $1.3 billion, and Tommy Hilfiger, Ralph Lauren, and Michael Kors have all expanded their handbag divisions. Meanwhile, at the higher end, Louis Vuitton, Gucci, and Prada all scramble to have an "it" bag every season -- a strategy that Kate has rejected. Bad idea, Frasch warns: "If you don't react to trends, you're going to get your brains beat out at retail." Saks has relegated the brand to the fifth floor, with younger labels like Juicy and Moschino, across from the store's designer jeans department, rather than showcasing it on the main floor with the more fashion-forward brands.

There have been past seasons, the Spades confess, where they lost their focus and their product mix hasn't been quite right. Burt Tansky, CEO of Neiman Marcus, refers to their troubles as a "challenging period" but says the line is now looking strong again and that there's no truth to the rumor that Neiman was looking to sell its stake.

One way to counter the competition is to expand aggressively on the retail front, and Andy estimates the company will roll out 50 of the mainstream Kate Spade stores in the next five years. Still, that's far short of the LVMH juggernaut, or Coach's plan for world domination through its 280 retail stores around the globe.

But what outsiders don't quite understand is that on some level, Kate and Andy don't really give a damn. It's not that they don't want to build a bigger, more successful company -- they do. But empire-building in conventional terms? Sorry, not their cup of tea. More than anything, Kate and Andy want to stay true to what they built -- even if it means settling for a smaller piece of the pie.

The two admit that their unconventional attitude about growth, combined with their iconoclastic ideas about branding, have complicated their search for a new CEO, a goal Andy announced last year. That person, he concedes, will need to be able to run the business, but understand that the definition of success at Kate Spade is about a lot more than simply making bigger numbers. The candidate will also have the daunting task of pleasing not just one, but two founders.

The pressure has only increased as the baby's birth draws nigh. Like expectant parents everywhere, the Spades are finding their priorities already undergoing a radical reordering. One of the advantages to having your name on the door, they both agree, is the ability to set your own work schedule, an option Kate plans to exploit to the fullest. And if somebody should complain that she's sneaking out the door at 4 p.m.? "Expect it!" she snaps. "We're fortunate to have flexibility," Andy adds. "Kate can cover for me, and I can cover for her."

The imminent arrival of Baby Spade has made questions of quality of life -- and legacy -- snap into clearer focus. "My child is going to be born in February," Andy, the branding guru, says. "I want him or her to look at this and say, 'That was a really cool company.' Not a cool bag -- a cool company."

From the design department, another voice pipes up. "I couldn't imagine doing this with anybody else," Kate says.

Linda Tischler is a Fast Company senior writer.