Shiv Soin

Michael Kors: Mega-Fashion Conglomerate?

Michael Kors has made known its intent to be associated as a luxury fashion line with its recent purchase of Versace.

By: Shiv Soin

Michael Kors has made known its intent to be associated as a luxury fashion line with its recent purchase of Versace.

Introduction and Company Aspirations

On September 24th, 2018, Michael Kors Holdings announced that it would be acquiring world-renowned fashion brand Versace for $2.12 billion dollars. After the purchase is complete, the company will be renamed Capri Holdings Limited and will comprise of the  Michael Kors, Versace and Jimmy Choo (which was purchased for $1.2 billion dollars on July 25th, 2017) brands. If that were not enough,  we can expect more from the company. CEO John Idol told CNBC in an interview that “this will not be [Capri’s] last acquisition” when discussing the Jimmy Choo deal. For now, they have been keeping their word.

With the acquisition of high-luxury brands, it is apparent that their goal is to create an American fashion conglomerate that could rival prominent European holdings like LVMH (which includes Dior, Fendi and Louis Vuitton) and Kering (which includes Alexander McQueen, Balenciaga and Gucci). But, can Capri Holdings replicate this European model? More importantly, what are the implications of the Versace purchase and what can we expect in the future?

Finances of Versace

It’s  important to note the finances of Versace. According to Fashion United, the company lost $8.3 million dollars in 2017 after a $17.3 million dollar profit the year prior. This is troubling considering that Idol hopes to earn $2 billion in revenue from Versace. The high goal Idol has set derives from past president with Jimmy Choo. After the acquisition, the shoe company’s revenue grew to $172.7 million in their first quarter.

Leadership of Versace and Opposition to the Merger

Donatella Versace, sister of founder Gianni Versace, will also continue to serve as Creative Director of the brand and has promised fans that “Versace will remain Italian, made in Italy and that it will keep its GLAMOUR, DARING and INCLUSIVE attitude.” Having Donatella Versace remain at the helm has eased the concern of some fans, but others remain skeptical. Fans have been using Donatella’s Instagram page to express their displeasure, with one fan commenting “what have you done? Go back to Kors and tell him ‘take back your money, [you’re] not for sale!” Another claimed that her “favorite brand is dead.” 

Vocal opposition of the merger on the belief that that the masstige (luxury for the masses) name of Michael Kors will taint the beauty of Versace. However, this certainly is not a unique case as AdWeek notes, “many consumers are unaware of the fact [that] Volkswagen owns Bentley, for example.” It is absolutely feasible that Capri Holdings can elevate both brands to a higher level and reach the status of conglomerates like LVMH and Kering. Michael Kors began to take actions that reflect this belief last year, as the company began to close 125 stores that had been increasingly discounting handbags and accessories.

Stock Market Analysis

Along with the opposition of Versace fans, the stock of Michael Kors Holdings LTD (KORS) decreased by 1.57 points on the day of the announcement. In comparison, when the Jimmy Choo acquisition was announced, the stock increased by 2.55% on the day of the announcement.

Conclusion

Capri Holdings has the potential to become an American fashion conglomerate. However, to do so, the  company needs to maintain Versace’s reputation as a higher-end luxury brand. They have been successful in this goal when working with Jimmy Choo, but they need to accomplish this on a much larger scale. The ambitious goals set by John Idol may be their worst enemy. To predict the outcome of Capri’s aspirations is problematic at this time, but, if Capri can maintain the masstige of Michael Kors and capitalize on the luxury of Jimmy Choo and Versace, then we may just be at the cusp of a new mega-fashion empire.

Sources

Image source: https://fashionista.com/2018/09/michael-kors-buying-versace-acquisition

Bhasin, K., & Williams, R. (2018, September 29). How Michael Kors Aims To Make Versace A $2 Billion Brand. Retrieved October 15, 2018, from https://www.seattletimes.com/business/how-michael-kors-aims-to-make-versace-a-2-billion-brand/

Klara, R. (2018, September 25). Will Michael Kors’ Acquisition Turn Versace Into A Midbrow Brand?. Retrieved October 15, 2018, from https://www.adweek.com/brand-marketing/will-michael-kors-acquisition-turn-versace-into-a-midbrow-brand/

Singh, P. (2017, July 4). Versace Slips Into Red, Posts Annual Loss Of 7.4 Million Euros. Retrieved October 15, 2018, from https://fashionunited.uk/news/business/versace-slips-into-red-posts-annual-loss-of-7-4-million-euros/2017070425062

Thomas, L., & Reagan, C. (2017, July 25). ’This Will Not Be The Last Acquisition,’ Michael Kors’ CEO Says After Jimmy Choo Deal. Retrieved October 15, 2018, from https://www.cnbc.com/2017/07/25/this-will-not-be-the-last-acquisition-michael-kors-ceo-says-after-jimmy-choo-deal.html

Versace, D. (2018, September 27). “Ciao a tutti!…”. Retrieved October 15, 2018, from https://www.instagram.com/p/BoO8ExtHZhW/?taken-by=donatella_versace

 

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