The news that Michael Kors is courting luxury brand Versace should come as “no great surprise”, one analyst says, as industry rumours suggest the fashion brand has agreed to take control of the Italian label in a deal that could value the company at about US$2bn.
Reports today (24 September) claim Michael Kors, which acquired luxury shoe maker Jimmy Choo in a $1.2bn cash deal last July, has sealed an agreement to take control of the Versace fashion house in a deal said to be worth about $2bn. An official announcement is expected sometime this week, according to Reuters.
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The newswire claims Donatella Versace, who doubles as artistic director and vice-president of Versace, has called a staff meeting for Tuesday, and has been considering a market listing after US private equity group Blackstone bought a 20% stake back in 2014 to fund overseas expansion.
As part of the deal, Reuters says Blackstone will “fully exit the Italian company, while the Versace family, which owns the rest of the fashion house, will keep a role”.
Neil Saunders, managing director of GlobalData Retail, notes the rumoured takeover is of no great surprise with Michael Kors having long desired to transform itself into a house of luxury brands, a process it started with last year’s acquisition of Jimmy Choo.
While Versace comes with a much bigger price tag of $2.35bn, almost double the $1.2bn price that Michael Kors paid for Jimmy Choo, Saunders says the takeover would also put a “big-hitting brand with true global status” into Michael Kors’ stable.
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By GlobalDataHowever, other than the desire to become a bigger conglomerate, the rationale for buying another luxury label is perhaps less sound, he says.
“In our view, while progress has been made, Michael Kors has not rebuilt its core brand to the same extent as other players like Coach: its offer is still confused and is nowhere near as rounded nor polished as many other luxury players. This shows up in the company’s sales figures where growth has been driven by an upswing in US consumer sentiment and spending, rather than because the brand is generating much better traction.”
But the choice of Versace is interesting. If the deal goes through it would certainly push the group into the big league in terms of its profile in the luxury space, Saunders notes, adding it also means that the company would be a player in many different categories from fragrance to home to pets, thereby giving the group a true lifestyle position.
“However, it is also the case that despite its profile, Versace has struggled to grow sales,” he cautions. “As such, Michael Kors is not buying a perfectly performing brand, it is buying a brand that needs work and some repositioning.
“As much as we believe Michael Kors past experience with its own brand will help it make the changes required, these shifts will cause short-term disruption and might mean that the true benefits from the acquisition will take a number of years to deliver through. We also believe that some of the work required on Versace, which includes toning down some of the brasher elements of the brand which are now out of step with the more subtle tone preferred by modern consumers, are precisely the issues with which Michael Kors has struggled and is yet to satisfactorily resolve,” Saunders explains.
“Ultimately, we view this deal as an additive one. While it is true that the enlarged group would be able to make savings on central costs, we don’t see the addition of a brand like Versace being about helping to boost the Michael Kors brand, other than perhaps through a more extensive global supply and distribution chain. It is much more a play to give the group a more rounded and defensible proposition that has a number of brands to drive performance across different parts of the market.”
Michael Kors, Versace and Blackstone did not respond to just-style’s requests for comment at the time of going to press.
