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Versace’s New Owner Plans to Build America’s Answer to LVMH. It Has a Long Way to Go.

Capri chief John Idol reveals his strategy for the budding luxury group that owns Michael Kors, Versace and Jimmy Choo.
(L-R) Jimmy Choo, Michael Kors Collection and Versace Spring 2019 campaigns | Source: Courtesy
  • Lauren Sherman

NEW YORK, United States — Will America ever build its own LVMH?

It's a question that has been debated for years, as hopefuls have tried time and again to gather together a group of brands with the potential to one day rival the world's largest luxury group. US-based Tapestry, which owns Coach, Stuart Weitzman and Kate Spade New York has earned its status as the accessible-luxury leader, but its brands can't touch the likes of Louis Vuitton and Dior in terms of status or scale. Ditto PVH, the owner of Tommy Hilfiger and Calvin Klein.

Capri Holdings, which owns Michael Kors, Jimmy Choo and now, Versace, is the latest contender. While the company has a very long way to go before it's anywhere near the scale of LMVH, whose market capitalisation (€130 billion, or $148 billion) dwarfs Capri ($6 billion), it's perhaps the worthiest of consideration. No matter that most Americans are inclined to mispronounce the moniker, named after the glamourous Italian island. (It's Cah-pri, not Cap-ree.) This group, which changed its name from Michael Kors Holdings on December 31, 2018, may be headquartered in New York. But its makeup — Michael Kors, Jimmy Choo and Versace: three different businesses, based in three different countries — reflects the global composition of the fashion industry.

Capri does not intend to grow an accessible luxury group like Tapestry, or an apparel-driven conglomerate like PVH. Instead, it aims to be a pure luxury player, and chief executive John Idol — who has run Michael Kors since 2003, scaling it to $4.5 billion in sales in 2018 — is a stickler for this delineation, despite the decidedly accessible luxury positioning of Michael Kors.


What he says he's trying to build is not luxe-light, but the real thing: a luxury group strong enough to stand alongside European leaders LVMH, Kering and Richemont, which together own more than 100 global luxury brands.

The task is massive. But Idol is undeterred.

(Clockwise from top) John D Idol, Donatella Versace, Michael Kors, Sandra Choi | Source: Courtesy (Clockwise from top) John D Idol, Donatella Versace, Michael Kors, Sandra Choi | Source: Courtesy

(Clockwise from top) John D Idol, Donatella Versace, Michael Kors, Sandra Choi | Source: Courtesy

“We felt that the luxury market will have the longest sustained growth over the next 20 to 30 years,” the chief executive said in a recent interview at the group’s headquarters overlooking Bryant Park in midtown Manhattan. “We were fortunate to be able to acquire two companies so quickly, and that they were founder-led.”

The "founder-led" bit is important to Idol. He said that Donatella Versace, who worked alongside her brother Gianni Versace — the house's founder — for many years before taking over after his death in 1997, is staying put after Capri's acquisition of the Italian fashion house earlier this year for $2.1 billion. So is king-of-New York Kors, who was minted a billionaire when the company went public in 2011, riding a wave of accessibly priced handbags. Sandra Choi, niece of Jimmy Choo's eponymous founder, who has been its creative director since 1996, is sticking around too. (The London-based shoe brand was acquired by Michael Kors for about $1.2 billion in 2017.)

“We have three secret weapons,” Idol said. “We’re not changing those.”

There won't be many changes on the executive side, either. Idol will continue to run Kors, while Jonathan Akeroyd, the former Alexander McQueen executive credited with readying Versace for a sale, will also stay on, as will Pierre Denis, chief executive of Jimmy Choo since 2012.

And yet, plenty of changes are coming to these brands as they make adjustments to their models in order to work towards that lofty goal. What makes LVMH and Kering successful, in part, is their heft. Having so many brands allows them to negotiate better retail deals and media buys. They also have a deep bench of executives, many of whom have been trained up the company’s ranks and can move in and out of different brands because they understand the group’s culture. The ability to share resources on the back end, from technology to manufacturing, is also valuable.


But more than anything, these groups were determined to play the long game from the beginning. This is critical to building and maintaining brands that are part of the fabric of the culture, especially capital-intensive luxury brands that are susceptible to the ebb and flow of fashion trends.

In the past few years, Kering and LVMH have become quicker to change over creative directors if a designer's vision is not selling. But they are careful to maintain the history and heritage of the label in external communications.

In contrast, American luxury brands tend to go through a boom-bust cycle, where they over-expand — often selling cheaper products to increase sales and satisfy the stock market, killing their cultural cred in the process. Calvin Klein, Ralph Lauren, Donna Karan, Marc Jacobs and yes, Michael Kors, are all products of this system. It's why you can still regularly find their products at off-price retailers like T.J. Maxx, where it's next-to impossible to find a label like Dior or Gucci.

"This has resulted in a luxury model based on higher off-price engagement, broader distribution and lower entry-level price points than is generally found in Europe," luxury analyst Luca Solca wrote in 2017.

At Capri, a significant amount of its revenue currently comes from Michael Kors products with entry-level prices. In order to stay on the luxury track, a recalibration, if not an extreme disruption, must take place.

Part of the tune up is taking what’s working at one brand and mirroring those tactics at the others. For instance, Michael Kors has too many stores, Versace too few. Each of the brands needs to prioritise digital sales — “the website is now the flagship,” he said — and better capitalise on the China opportunity. (The Asia region currently makes up just 19 percent of the group’s overall sales; Idol is aiming for that share to grow to 30-40 percent.)

All brands ebb and flow; that's just part of the luxury business.

If he pulls it off, Idol believes Capri can generate $8 billion in global revenue in “the next few years,” adding $2 billion to its current annual sales. But what does he need to do in order to make that happen?



Future-proofing the Michael Kors business is a crucial first step. In recent years, the brand’s sales have dipped as it continues its plan to close 100 of its own stores and attempts to reduce its reliance on discount-driven department stores. In its most recent fiscal year, ending in March 2018, sales at the Michael Kors brand were $4.5 billion, flat from 2017 and down from $4.7 billion in 2016. Some of that shrinkage was purposeful and related to the pullback on discounting; some of it had to do with over-distribution and ubiquity of the lower-priced goods.

Michael Kors remains an extremely profitable business, generating enough extra cash to start buying up other companies. But in order for it to remain so, Idol will have to tweak the Michael Kors offering, further developing the upscale ready-to-wear and luxury accessories business so that it can be less reliant on its once-hot timepiece business — part of a licensing deal with Fossil that generated more than $630 million for the watchmaker in 2017 — which continues to dwindle in the face of smartphones and smart watches.

In the group's 2018 fiscal year, royalties from licensed products, which include a beauty deal with Esteé Lauder, an eyewear deal with Luxottica and the deal with Fossil, were $145 million, down ever so slightly from $146 million the year before. The company attributed the decrease, in part, to lower sales of fashion watches, jewellery and fragrances that was offset by sales of smartwatches and eyewear.

Its Michael Michael Kors handbag offering, the mid-priced products sold at places like Macy’s and off-price retailers, have become less desirable. Idol said the brand didn’t do enough to capitalise on the logo-mania trend, either. “We did not go after it in the way that we should have,” he said.

To remedy that, Kors is rethinking its marketing strategy, from the images themselves to the way they are distributed. (In November 2017, the company hired Valentino veteran Francesca Leoni as the chief brand officer for Michael Kors, indicating a shift in approach.)

On February 4, Michael Kors will release a new Spring 2019 Michael Michael Kors (MMK) campaign featuring "signature" — read: logo — product, starring Bella Hadid and photographed by David Sims. (While disgraced photographer Mario Testino used to be the go-to for Kors, the brand has more recently contracted Sims and Inez & Vinoodh, who shot the Spring 2019 collection campaign.) While the idea of a "jet set" lifestyle remains core to the Kors brand — and the designer himself remains the ultimate spokesman — it has been updated with a new visual language and a new communications strategy.

In 2018, the group spent approximately $167 million on advertising and marketing, up from $119 million a year earlier. While the company doesn’t currently break down the difference between its digital and print spend, a spokesperson said that there has been a significant shift towards digital for certain brands in key markets.

Capri Holdings logo | Source: Courtesy Capri Holdings logo | Source: Courtesy

Capri Holdings logo | Source: Courtesy

Idol said that the brand’s ready-to-wear — the expensive runway “Collection” sold at select retailers and Michael Kors’ stores — is one of the group’s fastest-growing segments, and that the company is already making up for a slowdown in cheap bags with an increased demand for its higher-priced bags, like the “Bancroft” shoulder satchel. Michael Kors menswear, which Idol has in the past estimated can become a billion-dollar business on its own, remains a priority, despite the fact that men’s “takes longer to develop.” Soon, Michael Kors will launch men’s shoes for the Fall 2019 season to complement what Idol says is a large women’s footwear business.

Moving upmarket can be a nearly impossible task, but Kors started as a designer brand in 1981. The lower-priced Kors gear only really hit the mainstream in the last 15 years, after LVMH sold its 33 percent stake in the business to investors Silas Chou, Lawrence Stroll and Idol, transforming the business along the way into something more reliant on its accessible-luxury products. Soon after LVMH let go of its stake in Kors, the designer ended his run as creative director of Celine, one of the conglomerate's French houses.

Idol said that Capri is “deeply committed” to the success of the Kors mid-market business, although the company is investing more in luxury. He citied the two acquisitions, as well as the purchasing of factories and other facilities to help support those businesses, as proof points. “You'll be hearing some additional announcements about other things we will do to support that in terms of infrastructure,” he said. There are also still no plans to build lower-priced collections into the Jimmy Choo and Versace offering.


For Versace, image is far from the problem. Donatella Versace and her cadre of OG supermodels are beloved and idolised the world over. However, the power of the brand is much greater than the scale of the business the company has been able to build. Idol expects that the Italian house will more-than double its sales to $2 billion in the coming years, thanks to the combination of global name recognition and a bigger investment in everything from its retail network to its manufacturing capabilities. Right now, Versace has 195 stores. The plan is to bump that up to 300, and to expand its handbag and womenswear offerings.

Men’s makes up 49 percent of the Versace business: unusual for a luxury brand. Right now, 46 percent of its sales are from Asia, while only 18 percent is from the Americas region, where Idol said it is underdeveloped. Versace is also largely driven by ready-to-wear and has a nominal handbag business, which is a major structural disadvantage given the favourable economics of the product. That imbalance, he said, equals opportunity: If the brand can continue to ride the nostalgia wave that Donatella Versace has so deftly captured in her runway collections and deliver in currently popular categories, like sneakers, doubling sales is not out of the question.

Of course, this revival won’t last forever. “All brands ebb and flow; that’s just part of the luxury business,” Idol said. “There are going to be moments...where your house is the hottest and there are going to be times when you’re doing modest. That, quite frankly, is why it’s important to have a group. Not everything is going to be of the moment.” He went on to note that Versace has grown almost every single year since it opened in 1978.

While capitalising on trends might earn short-term gains, it's the accessories business that could sustain Versace in the long term. But getting handbags right won't be easy. Many luxury brands that started out as fashion houses have had success with bags — from Chanel and Dior to Balenciaga, Saint Laurent and Celine — but the market has never been more crowded.

Whether Versace can win in handbags is a major question mark.

Meanwhile, consumers are shifting their spending to shoes. (In order to grow enough, Versace will have to be successful in both categories.)

Whether Versace can win in handbags is a major question mark. The key, said luxury analyst Mario Ortelli, will be for Versace to hit on a style that feels perennial. “You want something to be on the safe side,” he said.


Jimmy Choo, the smallest brand in the portfolio, must also develop its handbags business. It'll make a serious push in the second half of 2019 with the launch of its own logo-ed "signature" collection. A new campaign starring teen model Kaia Gerber, shot by legendary photographer Steven Meisel, was also something of a reset for the label. "She's young and dynamic," Idol said. "[Hiring Gerber] was a seminal moment for us at Jimmy Choo, to really continue to communicate what this brand and this house stands for." Like Versace, Choo will also continue to build its store network — up to approximately 250 stores from the current 213 — and develop the brand, known for sexy, classic-looking styles, beyond footwear.

Long term, though, Capri as a whole will benefit from deeper penetration in China. Despite the slowdown in the region exacerbated by a trade war with the United States, a larger middle class that shops locally means larger demand for new entrants into the market.

“Up until quite recently, top-of-mind, high-end brands had a strong hold on the Chinese consumer,” Ortelli said. “But there is a growing opportunity with the growth of the middle class. Even if there is a slowdown for a year, that doesn’t mean the story will always be the same.”

Idol must also contend with public stakeholders, many of whom believed that Capri paid too much for Versace, causing the stock to plummet in the months following the announcement that it was buying the company. In August 2018, cost per share hit nearly $74. More recently, it has hovered below $40.

Specialty retail analyst Dylan Carden at William Blair recently adjusted its earnings estimates for the 2019 fiscal year, which ends in March, citing pressure on margins that are already below the luxury average, due to the investments it’s making in opening new stores for Versace and Jimmy Choo, building a bigger accessories business, and spending more on marketing overall. “The core Michael Kors brand performance has deteriorated and we believe has yet to show meaningful signs of recovery,” Carden wrote in a recent note.

Shareholder pressure aside, Idol is taking the longview.

"In any businesses, whether you’re in the luxury business or in the consumer products business, there are going to be moments when different parts of your organisation are going to be performing better than others," he said. "Michael Kors will grow. It will grow more slowly than the other two companies.... Once people see us execute after a few quarters or a year, and they see great results, there is going to be a very positive reaction. We’ve been very clearly stating what we believe we are going to be able to achieve. You have to deliver on your vision."

You have to deliver on your vision.

But while Idol has great ambitions for the group, don't expect a shopping spree in 2019 or 2020.

"For the next 24 months, we're going to focus on the development of Versace because we've made that very large acquisition. We're still focused on the development of Jimmy Choo. And of course, Michael Kors is going to continue to be our most important brand in terms of revenues and earnings, so we need to stay very focused on that," he said. "If something very interesting or unique or special was to come along, I think we would certainly consider it. But that's not our priority right now."

After all, LVMH was built over the course of nearly 40 years, Kering, as it stands today, over more than 20. In order for Idol to do it right, it will take time. So, don’t get too excited.

“We are in the early days,” Ortelli said. “We’ll have to see how it will work.”

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

Related Articles:

Donatella: ‘Versace Is Going to Stay a Luxury Brand’Opens in new window ]

Game On: Michael Kors Acquires Versace for $2.1 BillionOpens in new window ]

Can Anyone Really Build an American LVMH? Opens in new window ]

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