Mega-Marriage
It’s a mixed bag among consumers and market watchers.
Experts react to the merger of Michael Kors and Versace.
By now, most everyone in the fashion industry and beyond has heard the news that Michael Kors is buying Versace for $2.12 billion — and just as many people have had something to say about it.
On social media, the reaction from Versace fans following last week’s announcement was swift and vicious. “RIP Versace,” read several representative tweets. Many seemed aghast that the legacy of the late, legendary Italian designer Gianni Versace would be carried on not just by an American but by an American whose name is, to many, synonymous with midmarket handbags they can purchase at the mall.
However, many critics misconstrued the nature of the deal: Donatella Versace will stay on as creative director of the house that bears her family’s name, and she, her daughter Allegra and her brother Santos will become shareholders in Capri Holdings, the soon-to-be-renamed conglomerate formerly known as Michael Kors Holdings. (The name change becomes official at the acquisition’s closing.) Versace will also remain a luxury brand, Donatella confirmed, just as Jimmy Choo has since Kors bought it last year.
“I am not going anywhere, so for those who wanted to get rid of me … it ain’t happening,” Donatella wrote in an Instagram post last Thursday. “I also wanted to reassure you that Versace will remain Italian, Made in Italy and that it will keep its glamour, daring and inclusive attitude that have made you all love it.”
In contrast to some Versace fans, industry insiders have been bullish about the new partnership — though they’re also cautious in their optimism given the challenges ahead.
“The reality is, in new-world retail, living and dying by one brand is dangerous, no matter how strong the brand,” said Simeon Siegel, senior retail analyst at Nomura Instinet.
“More companies realize that having multiple ways to win helps temper the fickleness of fashion.” — Simeon Siegel
“Successes are built by leveraging strengths and benefiting from backend synergies. And more companies realize that having multiple ways to win helps temper the fickleness of fashion in any given season.”
Versace will give Capri Holdings exposure to the European luxury market, but its revenues, which hit 680 million euros ($798.8 million) last year, don’t come close to those of competitors like Gucci or Prada. For many years, the brand also ran at a loss, climbing into the black in 2017 on profits of 15 million euros ($18 million). Michael Kors chairman and CEO John Idol said the company is targeting $2 billion in revenue for Versace and plans to grow its stillundersized handbag, shoe and accessories categories to 60 percent of the brand’s business, compared with 35 percent today.
“The remains-to-be-seen element of this is: Can they effectively grow the business consistently?” said Camilo Lyon, a Canaccord Genuity Inc. analyst. “Kors can leverage its expertise in accessories and footwear creation and production to boost that business for Versace.”
In particular, he expects the company will leverage the logo trend while it’s red-hot. “That’s the immediate or near-term opportunity that Kors can accelerate to ignite the sales growth element,” he said.
While Versace gets a boost in its accessories game, Kors will likely reap the benefits of the Italian label’s foothold abroad. “As a very minor player in retail outside the U.S., the Michael Kors brand could stand to gain a bump in its credibility and perhaps a raising of its profile as a force to be reckoned with in European fashion,” argued Deb Gabor, CEO of Sol Marketing.
Idol has made no secret of his aspirations to turn Kors into a significant player on the global luxury stage, and this move solidifies the goal. It also raises the stakes for rival American conglomerate Tapestry, which owns Coach, Kate Spade and Stuart Weitzman, and whose CEO, Victor Luis, has also said he’d look abroad for further acquisitions as he, too, builds a modern fashion empire.
While Michael Kors’ stock took a hit even before the announcement was made — falling 8 percent last week amid reports of the planned Versace deal and recovering only slightly in the days since — several analysts reiterated or raised their price targets once the deal was sealed.
Cowen analyst Oliver Chen wrote in a note that the firm believes Michael Kors “is well-positioned to step-change Versace’s growth and margins over time,” provided it maintains a modern luxury ethos, which means “being inclusive yet exclusive … building on Versace’s rock-androll and glamorous heritage yet still being accessible, open-minded and body-positive to a new generation of luxury shoppers.”