What the Jimmy Choo acquisition says for the future of Michael Kors
In its latest attempt at revival, Michael Kors acquired Jimmy Choo on Tuesday morning in a $1.2 billion deal.
The merger is part of Michael Kors’s larger Runway 2020 strategy, a long-term plan to overhaul the company through tactics like diversifying its product mix. Details include growing categories like footwear, ready-to-wear and menswear, while scaling back on handbags. It’s also making moves to downsize stores and reduce discounting by 40 percent. These plans follow the company’s recent announcement that it will close 125 stores in the next two years and pull product from select department stores.
Michael Kors is joining the larger industry push toward consolidation, coming on the heels of mergers like Coach’s acquisition of Kate Spade and Walmart’s purchase of Modcloth and Bonobos. How do these mergers help beleaguered companies, and will Jimmy Choo succeed in breathing life back into Michael Kors? We took a look at the larger implications.
The Jimmy Choo effect
London-based Jimmy Choo has steadily built global brand affinity, thanks in large part to popular culture — including Princess Diana’s appearances donning the brand and its many mentions in “Sex in the City.” As a result, Jimmy Choo has established itself as a major high-end footwear player, competing with the likes of Christian Louboutin and Salvatore Ferragamo. At the end of 2016, the brand reported record revenue of nearly $460 million, up 2 percent from 2015.
Ultimately, Jimmy Choo may help Michael Kors regain the luxury cachet it’s sought to regain following several quarters of slumping sales due to brand dilution from extensive discounting: In the second quarter of 2017, it saw a drop in comparable sales of 14.1 percent.
“Jimmy Choo opens up fresh, new growth for Michael Kors, and vice-versa. But creating some scarcity, particularly for Michael Kors, would help reignite the ‘gotta-have’ feeling that catapulted it into women’s minds,” said Chris Paradysz, founder and CEO of PMX Agency.