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Michael Kors to Buy Jimmy Choo in $1.2 Billion Deal Michael Kors to Buy Jimmy Choo in $1.2 Billion Deal
(about 2 hours later)
LONDON — Michael Kors has picked out some new shoes to go with its handbags.LONDON — Michael Kors has picked out some new shoes to go with its handbags.
On Tuesday, Michael Kors Holdings said it had agreed to buy the shoe company Jimmy Choo for 896 million pounds, or about $1.2 billion, the latest push by an American luxury company to find sources of growth in an increasingly competitive retail landscape. On Tuesday, Michael Kors Holdings said it had agreed to buy the shoe company Jimmy Choo for 896 million pounds, or about $1.2 billion, the latest push by an American high-end fashion house to find sources of growth in an increasingly competitive retail landscape.
Many upscale retailers are grappling with plummeting sales and tepid profits. Mall traffic in North America has declined sharply, and deep discounting tactics have resulted in some luxury labels losing much of their luster with core customers. Many upscale brands like Michael Kors are grappling with plummeting sales and tepid profits. Mall traffic in North America has declined sharply, while shoppers who have traditionally been loyal to the so-called middle market have gravitated toward brands at extremes of the style and price spectrum.
Shoppers who have traditionally been loyal to the so-called middle market have gravitated toward brands at extremes of the style, and price, spectrum. That has benefited e-commerce giants like Amazon, fast-fashion brands like H&M and Zara, and luxury houses like Gucci. The trends have played well for e-commerce giants like Amazon, fast-fashion brands like H&M and Zara, and luxury houses like Gucci. But it has left companies like Michael Kors — once the runaway leader of the “accessible luxury market” — exposed.
And it has left companies like Michael Kors — once the runaway leader of the “accessible luxury market” — exposed. Jimmy Choo, which shot to prominence on the back of celebrity patrons like Princess Diana and “Sex and the City” star Sarah Jessica Parker, could give Michael Kors a new avenue for growth.
Michael Kors, known for fashion-forward designs and competitive prices, has been hit particularly hard after overreaching in a rapid expansion effort. Though both brands are red carpet favorites, they appeal to different segments of the population.
In May, it downgraded its sales forecasts for the rest of the year, and said it would close as many as 125 of its full-price retail stores. Its share price has lost a fifth of its value in 2017. Michael Kors, known for fashion-forward designs and competitive prices, is heavily reliant on outlets and department stores, where deep discounting is common. Leather purses sell for as little as $70 and handbags are available for $95.
The deal for Jimmy Choo could give it a new avenue for growth. Jimmy Choo occupies a higher price point: open-toe slip-on sandals sell for $425, while crystal-encrusted shoes with the brand’s signature sky-high stilettos go for nearly $3,000. The brand not only brings a different range of customers, but also hefty profit margins and an upmarket aura.
Michael Kors is heavily reliant on the outlets and department stores that have been hammered by changing shopping habits, meaning its products are often heavily discounted. But Jimmy Choo is in a higher price bracket than Michael Kors, and it attracts a different range of customers, bringing hefty profit margins and an upmarket brand aura. The deal for Jimmy Choo came just months after Coach agreed to a $2.4 billion deal to buy American handbag brand Kate Spade, apparently hoping that the combination of two affordable luxury brands could help it carve out new territory in a crowded market. Coach acquired its own upmarket shoemaker, Stuart Weitzman, in 2015.
Michael Kors is in need of an update.
The brand became a household name thanks to its charismatic and eponymous founder, who appeared for 10 seasons as a judge on the fashion-based reality television show “Project Runway.” His approach to fashion focused on the idea that every woman wants to look “pretty and rich.” For years, Michael Kors enjoyed soaring revenues as customers embraced its jetset-inspired accessories at affordable prices.
But the company has languished since going public in 2011, the most successful offering by an American fashion label. In May, it downgraded its sales forecasts for the rest of the year, and said it would close as many as 125 of its full-price retail stores. Its share price has lost a fifth of its value in 2017.
“For Michael Kors, this deal presents an opportunity to enter the high end of the luxury market, to increase sales and to diversify away from its own brand, especially at a time when it is experiencing declining same-store sales,” said Jonathan Buxton, the head of consumer and retail at Cavendish Corporate Finance, an investment bank.
There was likely to be more consolidation, he said, as other “affordable luxury” brands looked to move upmarket.
The deal will mark the first time Jimmy Choo has been owned by a company with expertise in fashion. The question now is whether it will expand into more accessible footwear, targeting new customers — perhaps ones more like those Michael Kors already has — or into new product categories. It has already made forays into fragrances and sunglasses, and dipped its toe into the luggage market.
The shoemaker was founded in 1996 by Tamara Mellon, then accessories editor at British Vogue, and the Malaysian cobbler Jimmy Choo. Its vampish aesthetic quickly caught the attention of the rich and famous, and more recently, Michelle Obama was frequently seen wearing a pair.
Mr. Choo exited the company in 2001, and Ms. Mellon sold her stake in 2011 after a bitter fallout with fellow board members about the way in which the company was being run. For years, Jimmy Choo was held by various private equity firms before becoming the first luxury footwear brand to list on a public market in 2014.
Jimmy Choo put itself up for sale in April as the Reimann family, the reclusive German consumer goods billionaires who had owned it, looked to reduce their luxury holdings. It announced record annual revenue and profits in March, aided by robust sales in Asia and a weaker pound, which increased the value of overseas revenue.
After the sale to Michael Kors, Jimmy Choo will continue with its current management team, including chief executive Pierre Denis and Sandra Choi, Mr. Choo’s niece, who took over creative leadership at the brand after Ms. Mellon left. The shoemaker has more than 150 stores globally, as well as a presence in many of the world’s top department stores.
Michael Kors said it expected to open new Jimmy Choo retail stores and expand its fashion offerings. It also plans to develop Jimmy Choo’s online presence, part of a broader push by brands to win over fickle consumers and fend off the threat posed by Amazon.
Expansion at the top tier of the market suggests that Michael Kors sees its best chance of clawing back growth as lying with the world’s wealthiest consumers.
The company has ramped up its e-commerce business in recent months, and has long been considered a pioneer in the effective use of social media in the sector. It was the first fashion brand to sponsor an Instagram advertisement, and has 10.3 million followers on the photo-sharing platform. While Jimmy Choo also pushes its offerings on social media (it has 6.8 million followers on Instagram), its efforts have been more recent.
“We believe that Jimmy Choo is poised for meaningful growth in the future,” John D. Idol, the Michael Kors chairman and chief executive, said in a news release. “We are committed to supporting the strong brand equity that Jimmy Choo has built over the last 20 years.”“We believe that Jimmy Choo is poised for meaningful growth in the future,” John D. Idol, the Michael Kors chairman and chief executive, said in a news release. “We are committed to supporting the strong brand equity that Jimmy Choo has built over the last 20 years.”
The shoemaker was founded in 1996 by Tamara Mellon, then accessories editor at British Vogue, and the Malaysian cobbler Jimmy Choo. It shot to fame thanks to a slew of celebrity patrons, including Diana, the Princess of Wales, and the actress Sarah Jessica Parker, who embraced its signature sky-high stilettos and the vampish aesthetic for which it became known. Under the terms of the transaction, Jimmy Choo investors would receive 230 pence for each share they own, representing a 36.5 percent premium to the share price in April, before the company announced it was putting itself up for sale. Shares of Jimmy Choo closed at 195 pence on Monday.
After three cycles of private equity ownership, it became the first luxury footwear brand to list on a public market in 2014. Prices range from $425 for flat shoes to $1,795 for over-the-knee suede boots, while small clutch handbags start around $700, according to Jimmy Choo’s website.
Michael Kors said it expected to open new Jimmy Choo retail stores and develop the brand’s online presence, and to expand the assortment of its fashion offerings.
The deal came just months after Coach agreed to a $2.4 billion deal to buy American handbag brand Kate Spade, apparently hoping that the combination of two affordable luxury brands could help it carve out new territory in a crowded market.
“Michael Kors follows the path of Coach — and again, on steroids,” said Luca Solca, a luxury goods analyst at Exane BNP Paribas. Mr. Solca said that after “a meteoric rise and spectacular crash,” American luxury brands like Michael Kors were looking to “recycle cash into other brands.”
Jimmy Choo put itself up for sale in April as the Reimann family, the reclusive German consumer goods billionaires who had owned it, looked to reduce their luxury holdings.
The shoemaker announced record annual revenue and profits in March, aided by robust sales in Asia and a fillip from a weaker pound, which increased the value of overseas revenue.
After the transaction, Jimmy Choo will operate under its existing management team, including the chief executive, Pierre Denis. It has more than 150 stand-alone stores as well as a presence in many of the world’s top department stores.
Under the terms of the transaction with Michael Kors, Jimmy Choo investors would receive 230 pence for each share they own, representing a 36.5 percent premium to the share price in April, before the company announced it was putting itself up for sale.
Shares of Jimmy Choo closed at 195 pence on Monday.
Jimmy Choo said its board of directors intended to unanimously recommend that shareholders vote in favor of the transaction. JAB Holding, a Reimann company and Jimmy Choo’s largest shareholder with a 67.7 percent stake, has agreed to support the takeover.Jimmy Choo said its board of directors intended to unanimously recommend that shareholders vote in favor of the transaction. JAB Holding, a Reimann company and Jimmy Choo’s largest shareholder with a 67.7 percent stake, has agreed to support the takeover.
“A combination with Michael Kors will allow Jimmy Choo to embark on its next phase of growth and provide opportunities for the benefit of Jimmy Choo customers, employees, shareholders and other stakeholders,” Peter Harf, the Jimmy Choo chairman, said in a news release.
JAB Holding also said in April that it was undertaking a strategic review of the Swiss leather goods brand Bally. A review of Belstaff, the British motocross-inspired brand acquired in 2008, is also expected.
The privately held Reimann company has built a coffee and food empire in the United States in the past five years by acquiring American coffee businesses, including Peet’s Coffee & Tea, Caribou Coffee and Keurig Green Mountain. In April, it agreed to buy the sandwich chain Panera Bread for $7.5 billion, including debt.
Goldman Sachs and J.P. Morgan advised Michael Kors, while Bank of America Merrill Lynch and Citigroup advised Jimmy Choo.Goldman Sachs and J.P. Morgan advised Michael Kors, while Bank of America Merrill Lynch and Citigroup advised Jimmy Choo.