hnnhcronin On April 24th, 2017, the largest shareholder of British luxury house Jimmy Choo and coffeehouse conglomerate JAB holdings announced its decision to sell its stake at Jimmy Choo in order to focus more on its coffee and food companies, such as Panera Bread and Peet’s Coffee. At one time, JAB holdings attempted to acquire a large pool of luxury brands, such as Italian leather goods company Zagliani and English jewelry house Solange Azagury-Partridge. However, JAB has been no match for luxury conglomerates like LVMH and Kering. By focusing on the food and beverage business, JAB believes it will be more profitable in the future. Jimmy Choo put itself up for sale in April, and Michael Kors has offered the renowned shoe company $1.2 billion (896 million pounds).
The decision to acquire the upscale Jimmy Choo is part of Michael Kors’s plan to remain relevant in the luxury sector. Not long ago, Michael Kors was one of the most recognized and lauded fashion labels around. However the brand has become too recognizable and has lost much of its luxury appeal. Michael Kors rapid overexpansion into outlet malls, engaging in discounting, and overexposure in department stores has resulted in a fall in luxury prestige. Customer awareness of Michael Kors discounting and slumping sales has all contributed to the company’s slow down. However, not all of the financial challenges are specific to Michael Kors; the current state of the retail market makes it very difficult for the accessible luxury brands to thrive. Those who want low priced, trendy styles have turned to manufacturers of fast fashion-Forever 21, Zara, and H&M who imitate runway trends and update the styles on their sales floors with great speed. And those who seek luxury have turned away from brands like Michael Kors, who has become too associated with discounting, and instead preferred to buy accessories from established luxury houses like Gucci and Louis Vuitton.
In contrast to Michael Kors’s image as too accessible to the masses, Jimmy Choo has a price point that only the truly wealthy can afford. With heels priced between $400 and $4,000, Jimmy Choo’s bedazzled stilettos were prominent as the stars on the red carpet since their rise to fame in the late 1990s with such iconic fashion forward celebrities such as Sarah Jessica Parker on “Sex and the City” and Princess Diana. Jimmy Choo’s prices and celebrity clientele allow Michael Kors to expand into a new market of high fashion. In time, this deal could help Michael Kors become a diverse international luxury brand company with brands with multiple styles and price-points. Reaching for an exclusive property like Jimmy Choo should benefit Michael Kors, especially at a time where consumers associate the brand with lower prices and lower quality products.
Michael Kors plans to leave the Jimmy Choo design team completely intact. The Michael Kors company hopes to expand and modernize Jimmy Choo’s marketing tactics. Michael Kors has a sizable social media following with a strong focus on e-commerce. Michael Kors has 10.3 million followers on instagram and Jimmy Choo’s has healthy 6.8 million followers. Kors strong e-commerce and social media presence should benefit Jimmy Choo. Jimmy Choo’s recent earnings trends will likely benefit and help counteract Michael Kors’s declining same-store sales. For fiscal 2016, Jimmy Choo reported a 15% increase in revenue to 364 million pounds ($473.2 million). Additionally, in the first quarter of 2017, Jimmy Choo’s net sales increased by 30.6% to $143.1 million, up from $111.5 million in first quarter 2016. Investors seem confident that this deal can benefit both companies; shares of Jimmy Choo rose 17%, following news of the prospective buyout.
Michael Kors rival Coach recently acquired Kate Spade, indicative of the belief that mergers and acquisitions are the means to growth. With the Kate Spade acquisition, Coach can tap into the millennial demographic who appreciated Kate Spade’s slightly lower prices and quirkier, more youthful designs. Michael Kors, on the other hand, gets to go upscale via Jimmy Choo – setting up a more level competitive ground between Coach and Michael Kors in the future. Consolidations allow companies to open new possibilities for sales growth and gain more respect as a brand, so it is likely the industry has many more of these deals to go.
Sources:
(NYTimes/Dealbook, 2017)
(https://www.forbes.com/sites/laurengensler/2017/07/25/, 2017)
(https://www.usatoday.com/story/money/2017/04/24/jimmy-choo-sale/100834922/, 2017)
(Jimmy Choo Plc)
