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Versace found the ultimate fan base with ’90s rap icons, now Michael Kors $2.1 billion acquisition of the iconic Italian luxury house, plans to tap into the mutual admiration that lingers to this day. Is it actually possible for Kors resources to insulate Versace from potential creative disruptive financial problems, while still allowing the house to focus on making resounding urban hits?
The Breakdown You Need to Know
Versace boasts more than 14 million Instagram followers, making it perhaps the most influential social media platform for luxury brands. This directly impacts black consumers since they are the biggest user group on Instagram at 43%, according to Pew Research. CultureBanx reported rappers are quickly becoming fashion’s new royalty. Sneaker collaborations include artists like 2 Chainz partnering with the Milan based fashion house on its “Chain Reaction” shoes.
Global sales of sneakers were up 10% to more than $4 billion last year. Hip-hop is a powerful tool for reaching Generations Y and Z, who are expected to account for 45% of the global luxury spend by 2025, according to Bain & Co. They also point out the landscape is shifting, driven by a younger more digitally focused audience and represents challenges for companies like Versace to expand.
The iconic brand built its name on boldness and creativity, far from the branded predictability of Michael Kors basic apparel and logo trenched handbags. Versace is the house of Medusa robes and Chain Reaction sneakers, which historically caused the brand to experience boom or bust fashion cycles, something Kors deep pockets can help level out.
A little while back Versace toyed with the idea of a public offering, but it never manifested due to a fluctuating market. Revenue hasn’t been great and stagnated at roughly $810 million in 2017, with the brand making a profit of about $17 million.
Here’s how the deal is going to shake out. Blackstone Group owns 20% percent of Versace and they are planning to sell their stake in the business as part of the deal with Michael Kors. Donatella Versace, her daughter Allegra, and her brother Santo Versace own the other 80% of the company.
Luxury Conglomerate Mindfulness
As part of Kors quest to to emulate the European fashion giants’ multi-brand approach, last year they scooped up Jimmy Choo for $1.2 billion. Also, it’s been reported the company is also trying to purchase Coach owner Tapestry. If Kors is able to close on both the Versace and Coach deal, they could be on par to compete with LVMH . In a statement, Kors said it will change its name to Capri Holdings once this deal closes.
Convincing investors this deal is a good idea may present a challenge, as Kors shares slid down nearly 8% on the day news of the acquisition broke. The concern stem from Kors being over exposed in the past, and resorting to heavy discounting in order to sell its products. In 2017, the company reported gross profits of $2.66 billion and its stock has since doubled in price compared to last year’s lows.
Many people doubt that brands like Versace can stay relevant when managed by conglomerates, which are often focused on profits over brand identity. Big names including Dior, Gucci and Yves Saint Laurent have found a home with companies like Kering SA or LVMH. There’s only a short list of brands from Chanel to Ferragamo and Burberry that have eluded the reach of investors or luxury conglomerates that would improve any portfolio’s bottom line.
