Michael Kors Holding Ltd. is close to an acquisition of Italian brand Gianni Versace for $2.35 billion, people familiar with the plans told Bloomberg, adding that a deal could be announced as early as this week. Neither Michael Kors nor Versace immediately returned Retail Dive’s requests for comment.
The private equity firm Blackstone Group LP, which owns 20% of Versace, plans to sell its stake in the deal, one of the anonymous sources told Bloomberg.
U.S.-based Michael Kors, once known mostly for its handbags, last year acquired luxe footwear brand Jimmy Choo for £896 million, or roughly $1.2 billion — a deal that had an enterprise value of $1.35 billion.
If there was any doubt that Micheal Kors aims to morph into a fashion conglomerate along the lines of Tapestry or LVMH, the acquisition of Versace, at this price point, should put that to rest.
Tapestry's recent evolution is a good case study for Michael Kors. Last year, Coach rebranded after retooling the handbag brand to reach a more upscale customer; It acquired Stuart Weitzman in 2015 and Kate Spade & Company earlier last year.
But that goal alone isn't enough to justify this move, and Michael Kors doesn't have what Coach has, according to GlobalData Retail Managing Director Neil Saunders. "While progress has been made, Michael Kors has not rebuilt its core brand to the same extent as other players like Coach," Saunders said in comments emailed to Retail Dive. "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 U.S. consumer sentiment and spending, rather than because the brand is generating much better traction."
Before acquiring Jimmy Choo, Michael Kors was shuttering stores and suffering a slowdown in wholesale as it retreated from department store sales, where discounts on handbags were rampant. But don't count on Versace boosting revenue the way the shoe brand has, Saunders said. Michael Kors Holdings last month reported a total first quarter revenue rise of 26.3% to $1.2 billion, including a $172.7 million contribution from newly acquired Jimmy Choo, which was consolidated into results effective Nov. 1 last year.
Adding Versace, the elaborate and always upscale brand founded by Gianni Versace in 1978, would certainly bring Michael Kors to new heights in the high-fashion hierarchy. But Versace's sales have suffered in recent years, Saunders warned.
"If the deal goes through it would certainly push the group into the big league in terms of its profile in the luxury space. 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," he said. "[M]ichael Kors is not buying a perfectly performing brand, it is buying a brand that needs work and some repositioning."
Part of the problem is that consumers are backing away from the outré styles characteristic of Versace. That means a lot of work in the short term, which will mean disruption and expense, Saunders said. In the end, it may not move the needle that much for Michael Kors, aside from helping diversify its position. "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," he said.