Can Michael Kors unlock the potential of Versace?
Versace is a trophy brand and I can imagine many a green eye coming from the offices of LVMH, Kering and other fashion conglomerates asking why they hadn’t claimed this prize themselves. While the price isn’t a snip - approximately US$2.12bn - and nobody knows the details of Donatella’s contract - it would have be something special in order to entice her to sell the family’s 80% stake - it is one of the few brands which resonates on to the lips and minds of everyday consumers. This happens for very few brands and is very hard to achieve.
Versace has a strong identity and tropes which are continually referenced – you only have to look at the continual "baroque" collections from ASOS, Boohoo and River Island to see that – yet it never seems to fully capitalise on them itself. It can’t turn that into money. The profits are small – €15m in 2017 - and it was always a brand which seemed to play musical chairs with its store portfolio; continually opening and closing stores.
On the other hand, Michael Kors is a well run accessorises company. The minute they knew their mid-market brand had peaked, and their market was saturated, they started closing stores – between 100 and 125 over two years. They knew the landscape changed, the brand was fatigued, and you need to make hay while the sun shines, which they’ve done. It’s knowing when to start putting your money into new areas and elevating. Everything is about ‘elevating’ ATM!
The confidence of buying Jimmy Choo (for $1.35bn last July), and that seems to be doing well, has maintained the momentum of this spending spree. While not likely partners, many groups have disparate brands and, if Michael Kors knows one thing, it’s how to grow.
John D Idol, Chairman and Chief Executive Officer of Michael Kors Holdings Limited, said: “With the full resources of our group, we believe that Versace will grow to over US$2bn in revenues [from $668m currently]. We believe that the strength of the Michael Kors and Jimmy Choo brands, and the acquisition of Versace, position us to deliver multiple years of revenue and earnings growth.”
“Donatella’s iconic style is at the heart of the design aesthetic of Versace. She will continue to lead the company’s creative vision,” he says.
It’s interesting to remember LVMH used to own a third of Michael Kors before he went for the “masstige” market and the company blew up and he was also the Creative Director of the LVMH owned Celine in the late 1990s.
The new group, containing Michael Kors, Jimmy Choo and Versace, will be called “Capri Holdings Limited”. (Didn’t Michael Kors once do a mink beach towel with “CAPRI” on it?) The new group says there is an opportunity to grow the group’s revenues to US$8bn in the long-term, which would make it one of the largest fashion companies.
Donatella Versace says: “Santo [brother], Allegra [daughter] and I will become shareholders in Capri Holdings Limited. This demonstrates our belief in the long-term success of Versace and commitment to this new global fashion luxury group.”
Michael Kors’ expertise is accessorises. They say they want to expand Versace men’s and women’s accessories and footwear from 35% to 60% of revenues. Versace has never really resonated in these areas, often looking more tacky than desirable. Jimmy Choo will also offer synergies in luxury footwear and bags.
There’s also going to be a ilip back to dressing up at some point and Versace is well placed, particularly in a sexually charged, Italian way.
As for more affordable products, they could expand underwear, home, sunglasses and perfume. The perfumes, since the very beginning, have never matched the quality and branding of the rest of the brand. Versace needs to choose areas and do them well, rather than the light licensing it has often achieved since its inception in 1978. Versace was one of those brands that had such disparate product – from cheap looking tins of perfume to the most luxurious Italian printed silk.
Capri Holdings say they want to “build on Versace’s luxury runway momentum” – *books Supermodels* – and want to be less reliant on its home market of the US, grow in Asia and become more global.
Versace must have had numerous takeover offers through the years and it would be interesting to know the reasons of, why now? Why Michael Kors? The brand is 40 this year, so maybe the family want to fully maximise its potential, maybe it was pressure from the private equity investors [Blackstone, which owned 20%] to get out, or maybe it’s the realisation that you have to turn into a billion dollar brand to survive. Grow or die.