In a move that rocked the fashion world, Michael Kors Holding has sealed the deal to buy the iconic Italian brand, Versace. Kors is buying the brand for a high $2.12 billion dollars. Many are shocked and upset at the deal. Many are under the impression that Kors will ruin Versace and all of its iconic style- solely due to the reputation that Michael Kors has in the fashion world. Many fashion enthusiasts think that Versace’s iconic quality and design will become collateral damage in this unexpected deal.
Amidst all the anger and upset, it’s hard to discern what the deal actually entails. What does Kors plan to do with Versace? How will all of this impact both brands? Is Versace really going to lose all of its influence and credibility? Maybe not so much. Only time will tell what actually changes in Versace, but if you look at the facts, not everything spells out trouble.
What Even is the Deal?
As mentioned above, Versace is being bought for $2.12 billion. Donatella Versace, the current creative director of Versace, is keeping $117 million worth of shares in the Versace company along with her brother Santo. Speaking of Donatella, she will remain as the creative director of Versace, and John Idol (the CEO of Kors Holdings) said that her “iconic style” will still remain. The chief executive of Versace, Johnathan Akeroyd, will also be keeping his position. Blackstone, the private equity firm that previously owned 20% of Versace, will also be cashing out their shares. So, what’s in store for Versace? Well, the main goal of Kors is to develop Versace into a powerful, global business. Idol had stated that Versace is “extremely underdeveloped”, and has intricate plans to change that for the brand. Everything is planned to finalize by the end of 2019.
So, What’s Happening to Versace?
The big changes that Kors intends to make are in Versace’s business affairs. The creativity and style will still remain under Donatella’s control, so Versace shouldn’t be losing it’s colourful and exuberant flair. Kors plans to roll out Versace in 100 new stores, which will increase Versace’s global retail from the current 200 to 300 stores. Kors also plans to expand Versace’s range of accessories for men and women, as well as footwear. Currently, about 35% of the brand falls under those categories. Kors intends to bring that up to 60%. Additionally, Versace’s e-commerce is going to be expanded. Altogether, it is estimated that these changes should bring up Versace’s sales to $2 billion- a large increase from the current revenue. These actions are actually going to be very beneficial for Versace, as it is true that from a business perspective, Versace has not hit its potential. The brand has been enduring losses and fails to exceed $1 billion in sales each year. Even though the brand is so culturally known and celebrated (how many times have you heard people talk about Versace, from rap songs to Instagram to magazines), that isn’t translating into sales. Kors buying Versace could have an amazing impact on its revenue, and bring the brand into prosperity. Donatella herself said: “We believe that being a part of this group is essential to Versace’s long-term success”.
And How Does This Affect Kors?
Well for one, a name change. By the time the deal is finalized, Michael Kors Holding Limited will change its name to Capri Holdings. This is possibly done to illicit more foreign and European appeal. A rebranding is definitely due for Michael Kors. In the past couple of years, Kors caught a lot of flack by being known simply as an affordable brand with “Made In China” quality goods. While the brand expanded it’s affordable market a lot, it caused Kors to lose any high-end credibility. Many tweets about the deal include snide jokes about Versace being sold at TJMaxx and Marshall’s, mocking the stature of the Michael Kors name. That, perhaps, is why Kors was so keen to buy Versace, even at such a high price. Earlier, in 2017, Kors Holding bought Jimmy Choo for $1.2 billion in another effort to regain credibility. Buying Versace is a powerful move to get Kors into the high-end market, and it’s clear to see that the company is trying desperately to be in that market. Aside from buying Versace, Kors also plans to close 100 stores and will be “streamlining” their products to rebrand as more luxurious. In the end, the company will most likely gain more reputation, especially if they plan to expand the new Capri Holdings and buy more high-end labels. The purchase puts Capri Holdings on the path to potentially rival European conglomerates such as LVMH. As CNBC reported “The deal marks one of the first times an American company has cracked the code of super high-end luxury fashion” and it sets a precedent for the future of the high-end market.
In the end, this deal is something that could benefit both brands in the long run, and many of the grievances people have shouldn’t be so severe. The creative style aspect of Versace will still remain, and they are not being sold out to a cheaper standard. Both brands are going to be advanced in areas they lack: Versace’s business development and the reputation of Michael Kors. No matter how upsetting and shocking the deal may be to most of us consumers, the deal might be something that ends up rejuvenating the brands for many more decades to come. Regardless, this new chapter will be a crucial one, and it’ll be amazing to see what new heights Versace and Michael Kors can soar to.