Commentary

Michael Kors Slips On Some Billion-Plus Jimmy Choos

Michael Kors has decided that the Jimmy Choo shoes fit, announcing this morning that it is acquiring the luxury brand for roughly $1.35 billion, the latter becoming a wholly owned subsidiary. The boards of both companies have approved the deal, which is expected to close in the fourth quarter. A conference call discussing the transaction begins at 8:00 a.m. ET; a live webcast is available here

“London-based Jimmy Choo rose to prominence in the late 1990s, boosted by high-profile devotees including the late Princess Diana and the fictional Carrie Bradshaw in television series ‘Sex and the City,’” write  Bloomberg’s Robert Williams and Thomas Mulier.

The deal represents “the latest push by an American luxury company 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,” observe Elizabeth Paton and Chad Bray for the New York Times.

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“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,” Paton and Bray continue.

“Jimmy Choo is an iconic premier luxury brand that offers distinctive footwear, handbags and other accessories,” Michael Kors, honorary chairman and chief creative officer, said of the brand in the release announcing the deal. “We admire the glamorous style and trend-setting nature of Jimmy Choo designs.”

His company recently “embarked on a turnaround program saying it would close 100 to 125 of its full-price retail stores and renovate existing stores. The company also reined in the amount of products it sends to department stores, which tend to offer deep discounts, and is trying to get more creative with its designs to get consumers to pay more,” Saabira Chaudhuri reports for the Wall Street Journal.

“But pressure has mounted on Michael Kors to find new avenues for growth after Coach Inc. in May agreed to buy Kate Spade & Co. for $2.4 billion, in a bid to tap younger consumers to offset slower growth in the handbag market. That market has slowed to about 2% growth from as much as 15% six years ago, according to Craig Johnson, an analyst at Customer Growth Partners,” Chaudhuri writes.

“Berenberg analyst Zuzanna Pusz said the deal followed in the footsteps of Coach's recent acquisition and showed U.S. accessible luxury companies were pursuing the multi-brand strategy found in Europe, where cash flows from one large brand are reinvested into smaller but faster growing ones,” writes Reuters’ Kate Holton in the New York Daily News. “Pusz said it was probably a sensible move in the long term, with competition unlikely to wane anytime soon.”

“Multiple companies such as Jimmy Choo, Prada, Ferragamo, and Cucinelli have gone public over the past couple of years with the intention of financing their retail expansion plans, thus accelerating their investments and giving the luxury consumer globally more choice of brands anywhere they go,” Pusz tells Holton. 

Malaysian shoemaker Jimmy Choo, who trained at Cordwainers Technical College in London, co-founded the company carrying his name with former Vogue accessories editor Tamara Mellon in a cobbler’s workshop in East London in 1996. “But it has gone through a number of different owners over the years. Mellon and the first of several different private equity suitors bought out Choo in 2001,” the BBC reports

“Ten years later, Mellon left the business to launch her own clothing line. In 2014, Jimmy Choo listed on the London Stock Exchange, by which time JAB, owned by the German billionaire Reimann family, was the main shareholder.”

Mellon’s departure followed an “acrimonious dispute with Towerbrook Capital,” Ashley Armstrong, relates in the Telegraph. “The row was later documented in her book, In My Shoes, in which she likened private equity firms to ‘vultures’ who didn't understand the world of fashion.”

Meanwhile, “Jimmy Choo’s chief executive, Pierre Denis, who has run the company since 2012, will stay on, alongside creative director Sandra Choi, who has been with the firm since the beginning, and the finance director, Jonathan Sinclair,” Julia Kollewe writes for The Guardian.

Jimmy Choo “continues to invest significantly in its online platform, which has experienced strong revenue growth in recent years,” it says. It also maintains 150 company-operated retail stores, 560 multi-brand doors and more than 60 franchise stores in premier locations in Europe, the Middle East, the Americas and Asia.

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