Michael Kors & Versace: Stitched at the Seam

An Iconic Designer

Founded in 1981 by the eponymous designer, Michael Kors (Kors) is a fashion brand and retailer known for its iconic style and craftsmanship. As a luxury goods and apparel company focused primarily on accessories, such as jewelry and handbags, Kors quickly experienced immense growth and became a multi-billion-dollar brand after going public in 2011. The company’s growth momentum took a drastic turn when the company reported a 5.8-per-cent decrease in North American comparable store sales in Q2 2015. Uncertainty around the company culminated in a highly public and somewhat controversial deal, when Kors purchased Versace—a Milan-based couture brand—in early 2018 for $2.12 billion to diversify its holdings. The company subsequently changed its name to Capri Holdings Ltd. (Capri). To combat the mixed reactions of both consumers and investors, Kors must now extract value from this deal by revising its operating structure and brand positioning.

Prior to 2016, Kors was a well-respected designer fashion brand in the U.S., with celebrities, such as Taylor Swift and Michelle Obama, sporting its products. In response to burgeoning demand, Kors undertook an aggressive retail expansion plan, opening new stores within malls and outlets at an annual growth rate of 27 per cent from 2012 to 2018. This move diverged from other luxury fashion strategies that limited distribution to maintain brand exclusivity. At the time, the expansion appeared to be successful, as Kors’ global revenues grew from $2.18 billion to $4.49 billion from 2013 to 2017. However, the company’s global comparable store sales were simultaneously dropping from a 40.1-per-cent growth rate to an 8.3-per-cent decline. This was partially due to overexposure of Kors’ products, as the widened availability of its discounted products through department stores such as Macy’s and Bloomingdale’s marred brand perception.

As the company’s comparable store sales continued to decline through 2017, management attributed poor performance to dwindling consumer traffic, increased mall vacancies due to greater competition, and a shift towards online shopping. Due to these poor results, Kors underwent retail restructuring, resulting in the planned closure of 125 retail stores and renovation of more than 100 additional stores by 2019. Analysts, however, attributed the company’s struggling performance to a decline in the brand’s prestige and the perception that products have descended to the accessible luxury category along with brands like J.Crew.

Consolidation in Luxury Fashion

The luxury fashion industry has undergone rapid consolidation in Europe this decade, spearheaded by luxury conglomerate LVMH Moët Hennessy Louis Vuitton SE (LVMH). LVMH grew to become one of the largest players in the industry by revenue, encompassing 70 brands in its portfolio, including notable companies such as Hublot, Christian Dior, and Dom Pérignon. As LVMH’s rapid rise in the industry was founded on its M&A strategy, other market participants such as Kering also adopted this strategy in a race to dominate the industry as a global conglomerate. Given Kors’ gradually slowing growth and minimal debt levels, management began to evaluate potential acquisitions as an opportunity to continue growing. When Kate Spade was listed for sale, Kors lost its bid to Coach’s $2.4-billion price. After the sale, Kors’ organic retail expansion strategy paled in comparison to the merger of its two main competitors.

In late 2017, Kors announced its acquisition of Jimmy Choo, a European luxury footwear brand, signaling two major strategic shifts for Kors. First, purchasing an upscale brand like Jimmy Choo signaled that Kors recognized its own brand could not enter into the high-end fashion market. As Michael Kors CEO John D. Idol stated, “We didn’t think our product innovation…was compelling enough [to create] desirability.” Second, Jimmy Choo’s management team was retained post-acquisition, suggesting that Kors intended to operate a portfolio of distinct autonomous brands.

A year later, the Versace acquisition elicited mixed reactions, partially due to severe operational issues. Versace only generated €15 million in profits off €668 million in revenues in 2017. It was uncertain if operational improvements could be made without damaging the brand’s authenticity. More insidiously, the Versace acquisition was unsettling because it raised questions about Capri’s commitment to its new strategy of entering the high-end fashion market with a portfolio of distinctly autonomous brands. Following the transaction, management discussed the heritage of the Versace brand and released photos of Donatella Versace with Capri executives. Kors also indicated that she would keep her role as Creative Director and have a significant role as a Capri shareholder. With Kors’ recent moves to shrink its retail presence and reduce discounting, it appears as if Capri Holdings is planning to use Jimmy Choo and Versace’s prestige to bring the company more upscale.

A Shift in Perception

While prevailing conglomerates in the luxury fashion industry are investing in high-end luxury brands with the goal of forming an integrated portfolio, Capri should instead model itself after the Volkswagen Group. The automotive conglomerate successfully operates both luxury brands such as Bugatti and Lamborghini alongside downmarket brands such as Volkswagen and Skoda while avoiding harmful brand associations.

Within this business model are two key insights. First, Volkswagen recognizes that customers fundamentally are uninterested in the conglomerate’s ownership of a brand, but are instead concerned that their personal experience with a brand will be diluted by associations with a less prestigious entity. Second, once a brand’s identity has been solidified in a customer’s mind, it is difficult to effectively rebrand and improve its stature.

The Kors brand suffered irreparable damage from the firm’s previous expansion strategy. The company’s omnipresent distribution has led to its products being found in suburban outlet malls and department stores—tarnishing the brand’s image of exclusivity. Knowing this, management’s attempts at elevating the Kors brand by clawing back discounts and closing stores seem misguided as they are unlikely to repair the stature of the Kors brand to a point where it can raise prices. Rather than attempting to move up-market and homogenize its brands like LVMH, which operates a multitude of similarly positioned luxury brands, Kors should double down on its current affordable luxury status and focus instead on growing sales volume. The goal would be to shift Michael Kors to a position similar to that of affordable luxury jewellery retailer, Pandora.

Having positioned Kors as a downstream brand intended for affordable luxury shoppers, Capri should use the Versace and Jimmy Choo brands to capture the lowvolume up-market customers, much in the same way that Volkswagen positions Bugatti and Lamborghini. By establishing completely different marketing messages and isolating interactions with customers based on specific brands, Capri can more effectively segment customers and compete using different strategies in different markets.

Post-Merger Integration

Realize Operational Synergies

Another major difference between the Volkswagen strategy and the traditional luxury conglomerate is the role of the parent holding company. LVMH is known for providing its various brands with unprecedented autonomy, allowing brands to be nimble and adapt to rapidly changing industry trends. This siloed strategy cannot be fully implemented with Capri, as all three portfolio companies have unique and significant flaws. Versace, for instance, has consistently struggled with profitability and can benefit from Kors’ retailing expertise and back-office synergies to immediately drive up margins. Jimmy Choo, before its acquisition, was a neglected brand with a constantly shifting strategy due to years of revolving owners. Jimmy Choo can benefit from being owned by a large conglomerate committed to growing the company. Finally, Kors needs high fashion brands such as Versace and Jimmy Choo in its portfolio, as Kors’ eroded brand value means that the company can no longer sell products to “true” luxury customers. Although Capri has various avenues to realize synergies, management must be selective with the tactics used to avoid diluting the Versace or Jimmy Choo brands with Kors’ reputation.

Capitalize on Real Estate

With the obvious differences in brand perception, there is little room for integration between Kors’ and Versace’s storefronts. While LVMH thrives by opening its brands close to each other to create a halo effect, Kors would do best by avoiding association between the two labels. Nevertheless, it is important to recognize Kors’ expertise in rapid retail expansion. In the short period from 2014 to 2018, Kors expanded its global brick-and-mortar presence from 405 to 1,011 stores, leading to annual revenue growth of 10.6 per cent over this period. Upon acquiring Versace, Kors’ CEO John Idol announced that the brand was “terribly underdeveloped,” and expressed his intent to expand Versace store locations from 200 to 300 with a focus in Asia. For Versace, which has always struggled with profitability, Capri can create significant value by prioritizing speed and efficiency, and by scaling Versace’s retail distribution footprint in the most effective way.

Streamline Back-End Processes

As in most acquisitions, cost savings can be realized by streamlining administrative operations and eliminating post-merger redundancies in the finance, human resources, and IT divisions. However, it is imperative that product research and development for each of Capri’s brands be kept separate to maintain individual brand identity. Management must maintain the distinct creative processes standard at large fashion houses, as patternmakers, tailors, and sewers should retain full control over pattern and prototype design. Retaining designer talent within each brand is crucial in creating products consistent with the brand’s quality and aesthetic.

Reevaluate Manufacturing Capabilities

To address negative reactions from Versace fans stemming from speculation that its brand would lose value, the company must emphasize that final assembly and quality control will remain in Italy. Sourcing of materials such as leather should also remain as is. However, there may be opportunity to shift inconspicuous elements to China, the cheapest manufacturing site for Capri. For example, metals for accessories can be shared between all three brands and relevant manufacturing processes can be moved to China to capitalize on cheaper labour.

Share CRM and Digitalization Infrastructure

Historically, Kors has been successful at marketing its brands through social media, as it has the third largest number of Facebook followers among the leading luxury brands. Although it would seem beneficial to consolidate the social media marketing teams of both brands, Capri should avoid taking this approach. As distinct brands, it is essential that Kors and Versace convey their own tone, imagery, and personalities.

In addition, although Kors and Versace target different customer segments, Capri could benefit from selling Versace products to the most loyal Kors customers. These customers would be identified through Kors’ existing CRM infrastructure by tracking amount and frequency of purchases. They could then be reached directly through digital marketing channels including social media advertisements or email promotions. Although it could pose a risk for Versace’s brand image if Kors were to directly cross-sell products or upcycle customers, deploying a digital approach allows the company to be more targeted with its advertising.

Down the Runway

To improve Kors’ stagnant revenues and fully establish its competitive reputation in the luxury retail market, the newly-established Capri must be ready to forfeit brand equity by pushing the Kors brand downstream, thereby driving volumetric sales to revitalize revenues. By sharing real estate, administrative, manufacturing, and digitalization infrastructures, Capri can realize significant cost-savings synergies with Versace. By keeping the Versace and Kors brands distinct, Capri can fashion a sustainable advantage for its future.


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