hnnhcronin MIchael Kors, in an attempt to become one of the major luxury conglomerates, has just announced its acquisition of the flashy Italian label Versace for $2.12 billion on September 25th. Private equity firm Blackstone, a partial owner in Versace, will turn over all of its shares to Michael Kors. This news follows the brand’s purchase of Jimmy Choo for $1.2 billion a year and a half ago, which goes to show that Michael Kors wants to elevate the status of its company with the acquisition of high profile European luxury brands. Michael Kors has long maintained the status as an American “attainable luxury” brand due to its comparable inexpensive prices and overextension into outlet malls and department stores. However, as Michael Kors improves the quality and raises the prices of its namesake company, it looks to other brands to strengthen its portfolio. The goal of attaining status as a global luxury player is partially a defense mechanism against recession spending habits; in past economic downturns, accessible luxury companies like Michael Kors and Coach are hit the hardest because their consumer base falls within the middle and upper-middle class. In contrast, true luxury brands, such as Louis Vuitton, Hermes, and Versace cater to the wealthy, who will still have more than enough money to drop on clothing and accessories largely independent of the economic climate.
Management has put forth the goal to increase its percentage of business holdings in Europe (from 23% to 24%) and Asia (from 11% to 19%) and decrease its percentage of business in the US (from 66% to 57%). However, the public is not responding with enthusiasm to these efforts; shares of Michael Kors (NYSE:KORS) were down 8% after the news was announced. The deal is expected to pull the image of high-end Versace down-market due to its association with Michael Kors, rather than vice versa–the intention. While Michael Kors is definitely making efforts to heighten its reputation in the world of luxury, it is still in the process of doing so, with its 100-125 projected store closures within the next 2 years and cutbacks on discounting; it has yet to fully redeem itself in the eyes of luxury customers, causing investors to worry that it lacks the strategic skills to successfully manage a brand like Versace. The main concern is that the boundry-pushing, flamboyant, haute-couture Versace will not mesh with the more contemporary American classic style embodies by Michael Kors.
In spite of public doubt, Michael Kors is confident that it will enable Versace’s revenue to grow to $2 billion and promote 100 new store openings. Michael Kors CEO John Idol aims to prioritize online growth and the accessories and shoe departments. Furthermore, Versace has struggled financially even at the peak of its popularity back when Gianni Versace was still alive in the late 1990s. Michael Kors provides the funding that the company needs to continue production.
As apart of its rebrand and expansion process, Michael Kors Holdings will follow in the footsteps of Tapestry Inc., formerly Coach, in changing its name to Capri Holdings–a name that is attributable to the serene, luxury lifestyle of the Italian island. Nonetheless, the Michael Kors brand will retain its name, as will Versace. This name change shows that Michael Kors understands the importance of Versace’s Italian heritage. In managing the Versace brand, current CEO Jonathan Akeroyd and Donatella Versace, creative director and sister to late founder Gianni Versace, will continue to head design and management efforts.
Only time will tell whether this acquisition will bring good fortune to Versace or lead to a loss of authentic identity. Michael Kors is charting into unprecedented territory as it becomes the first American fashion brand to merge with a European house of high fashion.
