By : Harshita Kohli
Collaborations and acquisitions are key to disruption for the luxury sector. Modest fashion stakeholders can learn a lot from the recent activities by major players. For those seasoned modest fashion labels, envisioning such collaborative possibilities may be in the near future. Michael Kors, a luxury handbag brand, agreed to acquire Jimmy Choo, a luxury shoe brand, for £896 million (around $1.2 billion) last month. This would be a case study on how consumers habits led to such an acquisition.
This latest acquisition in the luxury sector took place as the designer was facing complications including plunging sales and tepid profits. The sales declined by 11% in the latest quarter of 2017 because the products at online shopping sites are available at rock-bottom prices. Along with that, the departmental stores are putting the products at exceedingly low prices, which was affecting the same-store sales of Kors. As a result, people were not willing to pay high price for Michael Kors products at its store. The share price also lost 1/5th of its value. The company also diversified its product range by getting into clothing and accessories to sway the problems, however nothing had improved. Consumer perception was imprinted.
But the handbag designer did not want its elegance to go out of style, and lose its presence in the luxury market. Hence, he came up with the collaboration similar to Coach and Kate Spade in early quarter of 2017.
This acquisition will give Michael Kors a new avenue for international growth and a foothold in luxury shoe market. “We admire the glamorous style and trend-setting nature of Jimmy Choo designs” said Michael Kors, Honorary Chairman and Chief Creative Officer in a statement.
JAB Holding, the vehicle of the billionaire German Reimann family that own majority stake of the shoemaker agreed to the take over, as it was planning to shift into the food and beverages industry. Also, Jimmy Choo shareholders received 36.5% premium on the share price. With this Michael Kors is trying to shore up demand for expensive bags and expand beyond its own brand name.
“We are not going to do something small, let me just say that” John Idol, CEO of Michael Kors said in an interview. The handbag maker is also planning to buy some more brands to build it’s portfolio. Also it will close 100 to 125 stores and open around 150 new stores with innovative interior design and collection. The change will also lead to decline in sale of items to the departmental stores and rein in its discounting.
However the two brands will work independently in the future. The aim is to expand Jimmy Choo by opening more outlets in the Asian countries and create it’s online presence, as the expected increase in sales is $1 billion per annum from the acquisition. The main focus will be on integrating Jimmy Choo’s ‘Sex and the City’ stilettos in the next 6 to 12 months. Through this Michael Kors aims to achieve it’s lost position again in the market. And we learn a valuable lesson by watching this structure take place.