In acquiring Jimmy Choo, Michael Kors is cobbling together a luxury house in the European fashion, using a multi-brand strategy.
Fitting into the affordable luxury space, US-based Michael Kors specialises in handbags and accessories. Jimmy Choo, a British company, makes three quarters of its revenue from shoes. The acquisition will help Kors expand its footwear portfolio from 11% to 17% of total sales, the company expects. It will also give Kors an entrée into the top tier of the market and access to a different, more affluent consumer segment. Further, the company will gain more exposure to European and Asian markets, where Jimmy Choo has a strong presence, with about 150 retail stores worldwide. Kors Chief Executive John Idol said it has the potential to bring in $1 billion in sales annually.
“Acquiring Jimmy Choo is the beginning of a strategy that we have for building a luxury group that really is focused on international fashion brands,” Idol said in an interview with the New York Times. Jimmy Choo will continue to be led by the same senior management team, including long-time Creative Director Sandra Choi.
The American retail sector remains challenging, and Kors has lost 65% of its market value since 2014 due to fierce competition, as well as a drop in customers at department stores, many of which are closing. Sales at Michael Kors stores established for more than one year dropped 14% in the fourth quarter. One of the reasons is that the company expanded too quickly, making its brand too ubiquitous – running contrary to the aspirational luxury mind-set.
The luxury segment has mostly been spared the woes suffered by the broader retail industry, and is on the upswing again. However growth is uneven. A report from Bain & Company, released in May, predicted 2-4% growth this year in the global personal luxury goods market. Chinese consumers, shopping both at home and abroad, are driving much of this growth, followed by more confident Europeans. The US luxury market, while still the largest, is not faring as well.
“Brands need to be customer obsessed and millennial minded,” said Bain partner Federica Levato, a co-author of the report. “Buying a luxury good now is not just walking into a store. It has become a journey of engagement through multiple touchpoints well before the point of sale.” Those in the affordable luxury segment in particular are looking at new markets and customer bases to boost sales. Many are rethinking their strategies. Two months ago Coach, a rival to Michael Kors, employed a strategy similar to that of Kors, agreeing to buy fashion brand Kate Spade & Co.
Berenberg analyst Zuzanna Pusz said both the Kors and Coach deals showed US affordable or accessible luxury companies are pursuing the multi-brand strategy long found in Europe, Reuters reports, “where cash flows from one large brand are reinvested into smaller but faster growing ones.” Paris-based Kering SA, for example, has implemented the multi-brand strategy to boost revenue. Its brands include Gucci, Yves Saint Laurent and Alexander McQueen.
