Jimmy Choo purchase just the start, says Michael Kors CEO John Idol

More deals on cards for fashion brand as it seeks to expand its retail base and build a multibrand luxury goods empire

PUBLISHED : Wednesday, 26 July, 2017, 7:00pm
UPDATED : Tuesday, 01 August, 2017, 5:43pm

Michael Kors isn’t done with deals. The fashion house, which agreed to buy luxury shoemaker Jimmy Choo for about US$1.2 billion this week, is planning to build a portfolio of upscale brands. And that means acquiring more businesses, possibly in the same billion-dollar range, according to chief executive officer John Idol.

“We are not going to do something small, let me just say that,” he says. “We are not going to buy a US$10 or US$20 million brand, that’s not going to move the needle for us.”

Michael Kors to buy luxury shoemaker Jimmy Choo for US$1.2 billion

The company is turning to deals as it tries to regain lost sales – a slump brought on in part by its flagship brand becoming too exposed. Michael Kors plans to focus on integrating Jimmy Choo, known for its Sex and the City stilettos, in the next six to 12 months. Then it will start shopping around again, Idol says.

The Jimmy Choo acquisition was Michael Kors’ biggest effort to expand beyond its own brand name since its initial public offering in 2011. The takeover gives the company a greater presence in higher-end luxury – and helps it play catch-up with Coach Inc, which agreed to buy Stuart Weitzman in 2015 and made a US$2.4 billion deal to buy Kate Spade & Company in May.

It also helps decrease Michael Kors’ reliance on handbags. Both Michael Kors and Coach are trying to become something akin to European luxury conglomerates, with a diversity of brands.

“These two fashion houses are trying to achieve what Kering and LVMH have done in an American way,” says Milton Pedraza, a New York-based luxury consultant.

But Michael Kors faces a critical challenge: maintaining the cachet of Jimmy Choo while building up its distribution.

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“You don’t overexpose it, you don’t oversell it and overexploit it,” Pedraza says. “You can still grow viably without growing like a weed and becoming a weed.”

Like Ralph Lauren, Michael Kors opened too many stores and stretched itself too thin. The company also has relied heavily on struggling department stores and discounters such as T.J. Maxx, where steep discounts hurt the brand’s image. On the Macy’s website, for example, Michael Kors’ signature US$298 tote bags are now on sale for as low as US$149.

Its stock tumbled 32 per cent in the past year as the company struggled to mount a turnaround plan.

As Michael Kors works to regain its prestige, it will close up to 125 retail locations in the next two years. The company also is renovating the stores that remain, stepping up product innovation and further cutting promotions – part of the Runway 2020 turnaround plan that Idol announced in May. The Jimmy Choo acquisition will increase the sales contribution of its footwear business to 17 per cent from 11 per cent currently, Idol says.

Michael Kors is buying Jimmy Choo from JAB Holding Company, owned by the billionaire Reimann family. It will pay 230 pence a share for the shoemaker, a premium of 18 per cent over Monday’s close. The price is equal to about 13 times Jimmy Choo’s adjusted earnings for 2017, according to Bloomberg Intelligence analyst Deborah Aitken.

Jimmy Choo rose to prominence in the late 1990s, boosted by high-profile fans, including the late Princess Diana and the fictional Carrie Bradshaw in television series Sex and the City. The brand gets its name from its Malaysian-born co-founder, who created it in 1996 with British designer Tamara Mellon.

For future acquisitions, Michael Kors could seek luxury footwear and accessories makers with visionary designers, Idol says. The company is looking for names that aren’t already widely distributed. “We are definitely interested in having things that we can help develop.”