NEW SHOES

Michael Kors and Jimmy Choo are joining forces as the middle drops out of the fashion market

Obsession
Fashion
Obsession
Fashion

Michael Kors is doing a little shopping. The American clothing and handbag brand is acquiring shoemaker Jimmy Choo for £896 million, or about $1.2 billion. The deal for £2.30 per share of Jimmy Choo was announced today (July 25).

The buy had long been rumored. Michael Kors has been seeking a new avenue of growth because its own brand is in a major slump. A pioneer of so-called “affordable luxury,” it remains expensive compared to mall-brand chains, such as J.Crew, but not quite as pricey as the European luxury stalwarts.

For a long time that positioning was a sweet spot, but recently the bottom has fallen out as shoppers have flocked to the high end and low end, hollowing out the middle. Michael Kors appears to hope that Jimmy Choo will give it an upmarket foothold to stabilize its business.

Michael Kors has suffered as department stores, one of its major sales channels, fight for survival. It has also become trapped in a cycle of discounting to get shoppers to buy, gradually devaluing its brand.

Coach, another affordable-luxury staple, was battling the same problems until it decided to tackle the issue head on, cutting back on discounts and introducing more upscale products. Michael Kors hasn’t yet managed the same, and it’s still on a downward trajectory. In May, it downgraded its sales forecast for the year ahead, adding to a disappointing run of results, and announced that it would close between 100 and 125 stores.

Jimmy Choo, on the other hand, has seen steady growth. (Its current owner, the German company JAB, is looking to focus more on food and drink retail, hence the sale.) Michael Kors thinks it can use its own global infrastructure to expand Jimmy Choo’s footprint. It says it plans to “support the growth of Jimmy Choo through retail store openings and further development of its online presence as well as through an expanded assortment of additional fashion product offerings.” It also said it intends to leave the brand’s existing management team in place.

The move could be a good one for Michael Kors. Coach has seen solid growth from its own footwear acquisition, Stuart Weitzman, and is hoping to repeat that performance with its recent purchase of Kate Spade. Whether Michael Kors will fare as well remains to be seen, but shoemaker Jimmy Choo could be just the right fit.

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