Fashion and bags brand Michael Kors Holdings has been tipped to make a $2 billion bid for high fashion brand Versace. According to Bloomberg sources, the deal may be revealed as early as this week and comes as the latter draws interest from several buyers, with investor Blackstone Group being tipped to sell their stake.
Currently, 20% of the group’s shares are owned by Blackstone, which acquired the stake – worth a total enterprise value of €1 billion – in February 2014 to accelerate Versace’s growth. Meanwhile, the Versace family owns around 80% of the company and will continue to have a role under any agreement, Bloomberg’s report added.
The move comes around one year after Michael Kors acquired luxury footwear brand Jimmy Choo for US$1.2 billion, with the former saying it would keep the existing management structure of Jimmy Choo once the deal completes, with Pierre Denis staying on as chief executive.
Marketing has reached out to Versace, Michael Kors and Blackstone for comment.
News of the possible acquisition has sparked backlash from consumers, who have urged the brand not to sell to Michael Kors, with many threatening to boycott the brand if the deal goes through. This also saw comments being left on Donatella Versace's Instagram posts telling her not to sell the brand to Michael Kors. Donatella Versace is currently the chief designer of Versace Group, and sister of its founder.
Kors buying Versace removes so much of it's appeal. Michael Kors is luxury but Versace is elegance and high-class. Clothes and accessories that speak for you. What does it become once it's owned by another entity.
— la coche (@cvndynight) September 24, 2018
Worst-case scenario about this: Versace is being sold at Marshall’s for discount prices just like Michael Kors pieces. pic.twitter.com/q15zKrHUPn
— britt. (@_brittanyrod) September 24, 2018
Reacting to the potential sale, Graham Hitchmough, chief operating officer at Bonsey Design, said that the potential sale of Versace to Michael Kors just represents the latest in a wave of consolidation within the fashion industry. This comes as established and emerging groups in the US and Europe vie for market scale and dominance. On why the acquisition is more controversial than most, Hitchmough said:
For many, the Michael Kors brand represents middle-market, discount luxury compared to the high-luxe royalty of the Versace name.
“This name is further embodied by the company’s founder Gianni Versace and chief designer Donatella Versace. As such, many Versace fans are up in arms across social media, fearing the dilution and diffusion of the brand,” he explained.
For Simon Bell, managing director, Fitch Design Singapore, the move by Michael Kors was not only gutsy, but “shrewd” as well. Versace, he explained, is a brand with a huge back story and heritage – and heritage is what gives brands future options.
“Fashion often associates with big personalities and so there will be big opinions flying around on this story. But there is also big money at stake, which means someone at Michael Kors understands the opportunity,” Bell added.
He is also of the view that the branding of Versace should not falter as a result of the transaction due to its boldness and links to high-fashion. The challenge then lies in using these bold assets to find new audience through new fashion lines and brand messages.
“[For Versace], keeping its ‘in-your-face’ style should enable certain smooth-sailing transition as it ensures the brand stays true to what made it famous in the first place,” Bell said.
Steering a careful course
To minimise the impact of backlash from fans, Bell said Versace needs to present a considered and thoughtful way forward. It needs to tackle issues and position the brand as a forward force, and also be confident in its opinion on where the company are headed and why.
Bonsey Design’s Hitchmough said that the new owners also need to steer a careful course between maintaining the autonomy and imprint of the Versace brand. This is while applying its “undoubted marketing and operational clout” to revive what has been slowing growth and mixed receptions at recent international fashion shows.
“A continued prominent role for Donatella Versace will be vital in short-term, until a suitably high-profile or high potential candidate can be found to take the fashion house forward, in a similar way to how Christopher Bailey steered Burberry and Alessandro Michele has reinvigorated Gucci,” he added.
Another measure both brands should take is also separating Michael Kors (the founder) from this process (at least publicly) to help in quelling some of the negative sentiment surrounding the move.
“However, the commercial focus is likely to be less on the disaffected Versace die-hards of US and Europe and more on the high volume markets and consumers of Asia, where the power and allure of the brand name will for now at least continue to transcend the specifics of ownership,” Hitchmough explained.
In addition, if Michael Kors were to continue its acquisition spree, it may also need to take on a similar stance to Coach and consider a name change, just like what Coach did in calling itself Tapestry Inc. For Hitchmough, this will allow the brand to “annex further super luxury brands” without the “taint and consumer backlash of going under a more populist high street name”.
Also weight in on the conversation is Pascal Martin, partner, OC&C Strategy Consultants, who said Versace’s new owner is betting on all the obvious levers – open more stores, grow e-commerce, increase the accessory business – to accelerate growth.
"It makes sense for Versace to join forces with Michael Kors and Jimmy Choo to catch-up in the digital space. But with all the investment required, it may take a while before it can bring the brand’s profitability to a level more in line with luxury peers," he said.
He added that the biggest challenge for Versace will be to re-energise the brand and make it relevant to younger generations, particularly in Europe and Asia, while keeping a smooth and productive relationship with the family.