The lure of Medusa
Versace is not for everyone. The Italian fashion label with its Medusa-head logo and bold-borderingon-outlandish designs is for someone, though. Liz Hurley, for example.
The black Versace dress (often referred to as “that dress”) she wore while accompanying actor Hugh Grant to the premiere of Four Weddings and a Funeral in 1994 catapulted the young model to international stardom. It was held together by several wellplaced, oversized gold safety pins.
Someone else taking a bet on the Milanese brand is Michael Kors.
The US fashion group will buy Italy’s most storied designer for $2.1bn, including debt. The acquisition is important because it builds on Michael Kors’s plan to create a conglomerate that, if it’s successful, would rival European heavyweights LVMH, Gucciowner Kering and Richemont.
Historically, Michael Kors has sold what is known as affordable or accessible luxury — handbags that sell for R4,000 and watches in the R2,500 range. Its ambition to transcend the “middle market” and grow its portfolio through high-end brands started last year when it bought British stiletto maker Jimmy Choo for $1.2bn.
The deal is also significant in that it marks the end of independence for one of the world’s most prominent fashion houses amid a rash of consolidation within the industry. Most founders of legacy European luxury brands are eyeing retirement — only a handful of independent global fashion brands are still fair game.
While some luxury brands like Gucci and Dior are riding high on strong demand from China, others have been struggling to capture younger spend. Bain & Co’s latest annual luxury study found that the millennial generation in China (aged 20-34) has become the key growth driver of the industry.
On average, each millennial made eight luxury purchases last year compared with five for members of other age groups in the survey.
The global market for personal luxury goods was estimated to be worth $307bn in 2017.
The business of fashion
As a privately held company Versace doesn’t disclose its numbers, but documents held by the Italian chamber of commerce show that it posted sales of €668m last year.
Since Gianni Versace was murdered in Miami in 1997, two of his siblings, Santo and Donatella, have had key roles in running the company.
US private equity group Blackstone owns a 20% stake — it will cash out as part of the Michael Kors deal. At one point an IPO was on the cards but Versace’s performance was inadequate to justify a market listing. In the past few years the label has slashed debt and ended some franchising and licensing agreements. Last year Versace returned to profit — posting just under €15m compared with a net loss of €7.9m the previous year.
Michael Kors is renaming itself Capri Holdings, though the Michael Kors brand will continue to exist alongside Jimmy Choo and Versace. The plan is to grow Versace to $2bn in revenue globally and expand its footprint from roughly 200 to 300 stores.
Last year Michael Kors closed 100 of its 125 boutiques, and items were pulled from department stores (a channel the brand has traditionally used heavily) in an effort to reduce deep discounting, which had diluted the stature of the brand. How well Michael Kors can transition from mass appeal to couture credibility remains to be seen.