Why did Michael Kors buy Versace?
Michael Kors last year snapped up shoemaker Jimmy Choo Plc for about £896 million ($1.2 billion) in an attempt to build the first US-based multi-brand fashion empire along the lines of Paris-based conglomerates LVMH and Kering SA. Kors saw Versace as good addition and positioning tool - “We are excited to have Versace as part of our family of luxury brands, and we are committed to investing in its growth," Michael Kors Chairman and CEO John Idol said in a press release.
In an attempt to raise financing Versace had been working toward an initial public offering, but tough market conditions haven’t allowed it to do so, the company had been struggling to navigate the turbulent landscape within the fashion industry which has made it harder for independent brands to access financing from creditors.The arrival and inevitable rise of online shopping, fast fashion, mixed with digital celebrities such as the Kardashians brought a string of challenges and competition to the luxury fashion industry. 2016 capped what seemed to be the fate for the iconic Italian fashion house after a 7.4 million euro loss despite higher turnover. The company managed a 15.3 million euro profit the year before, but higher costs and significantly cut into its profits. It seems Versace operated without any safety net or exit strategies. A company as valuable as Versace should have a detailed exit strategy updated annually which covers various disaster scenarios.
1. How to operate in the case of a global market collapse.
2. What todo if for whatever reason store sales fall between 15-30%.
3. How do we cut costs without impacting market presence and customer perception.
Each of the above exit strategies may have incentivised the company to manage store openings and save sufficient profits generated in the early years. So why did Michael Kors buy Versace considering all the company woes?
Why did Micheal Kors buy Versace?
During the early 2000s Versace invested heavily in its brick and mortar storefronts, accumulating 150 global stores and thousands of staff. Having such a high fixed operational cost made it extremely difficult for the giant to reposition as technology (namely social media) took centre stage. ,Fast forward mid September 2018, Italian paper Corriere della Sera reports that Versace had several companies interested in a takeover including Kors and Tiffany & Co. LVMH, PVH Corp. and Tapestry. By the 25th of September Michael Kors group confirmed an agreement had been reached to purchase Versace for $2.3b.
The luxury fashion group says the deal will help it diversify its geographic portfolio from 66% Americas to 57% Americas; from 23% Europe to 24% Europe; and from 11% Asia to 19% Asia. Micheal Kors group is on a mission to diversify its customer base, by adding Versace to its portfolio the company will be able to penetrate the European market and compete with the likes of Philip Plien, Dolce, and Prada. A huge step for an ambitious Michael Kors Group.