Higher-end Meets Highest-End: Are Michael Kors and Versace A Perfect Couple?

Higher-end Meets Highest-End: Are Michael Kors and Versace A Perfect Couple?

By Brent Franson | Best Practices | 03 October, 2018

$2.1 billion.

That’s what it took for Michael Kors to snap up famed Italian fashion house Versace and create a new American luxury conglomerate – Capri Holdings – that also encompasses Kors’s previous acquisition, Jimmy Choo. Some might dismiss this as an “odd couple” pairing – the hyper-accessibility of Michael Kors and the esoteric appeal of Versace – but the move could work well for both brands.

Our cultural tastes have changed. Broadly speaking, we’re in the midst of a profound shift in fashion toward smart, casual quality. Mark Zuckerberg – a billionaire several times over – wears hoodies and jeans. Athleisure has now captured 24 percent of total apparel sales. Millennials are less attracted by labels and more interested in high quality, made-to-last clothing and accessories that look understated and feel authentic.

In contrast, Versace has a very distinctive, upscale look that is both limited in customer appeal and feels especially extreme in this context, perhaps two reasons why the brand is “barely profitable.” That likely encouraged the company to be more open to the deal; a smaller customer base is not enough to sustain Versace long term and joining forces with Michael Kors gives them some assurance of survival. And it’s not all one-sided: Versace may offer Michael Kors some great learnings on the high-end store experience – and, of course, access to the luxury international market won’t hurt.

Meanwhile, Michael Kors broadens its luxury footprint. Luxury is the rare bright note in the industry’s gloomy apocalyptic dirge – and the component most likely to bolster a conglomerate during an economic downturn. In a time when retail continues to struggle, the luxury segment achieved $289B in global sales in 2017. Executive leadership at Michael Kors sees the same numbers we do – and they are clearly executing a long-held ambition to become bigger than they are now. Like Jimmy Choo, adding Versace buys Michael Kors instant entrée to a higher-end market, while retaining strong brand credibility with a wide upper middle-class consumer base.

Most importantly, it allows them to compete with the conglomerate model (e.g., Coach and Tapestry, Kering, and LVMH), which is why more than one pundit has speculated Michael Kors could be the first successful American version of this powerhouse setup.

But they both have work to do. What’s next? That is always the inevitable follow-up question. It’s really a classic acquisition problem. You must preserve what people love and value about the brand you’ve acquired. But you must also eliminate the weaknesses that made them open to selling. In this case, Michael Kors must help Versace along in its transition to embracing the omni-channel experiences, perhaps broaden its appeal enough to attract new customers while not risking the old, and focus successfully on Millennials and Gen Z consumers (Gucci’s nailing this).

And, of course, Michael Kors itself also has a heavy lift – one analyst noted that a recent uptick in sales was less related to the brand and more attributable to stronger consumer spending. Translation: there’s still more for the brand to figure out and it better happen fast.

What was your take on this acquisition – and do you think the combined force of Michael Kors and Versace makes big headway?

 

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Brent Franson

Brent Franson

Brent is the CEO of Euclid Analytics.

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