The lure of Me­dusa

Financial Mail - - SHOP TALK - @zeenat­moorad mooradz@bdlive.co.za

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.

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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.

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