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Designer Michael Kors acknowledges audience applause after his collection was modeled during Fashion Week in New York, Wednesday, Feb. 14, 2018. (AP Photo/Richard Drew)
AP Photo/Richard Drew
Michael Kors is said to be buying some Versace.
BIG AMBITIONS

Michael Kors is buying Versace as it builds a luxury empire

By Marc Bain

Michael Kors isn’t hiding its ambition to build a global luxury conglomerate in the style of Europe’s powerhouses. It already made a deal last year to acquire high-end shoemaker Jimmy Choo, and in closing out the company’s recent earnings call with investors, CEO John D. Idol said the company was continuing to look for “strategic luxury acquisitions.”

That next acquisition is in the works. The American fashion brand is taking control of Versace, in a deal valuing the Italian label at more than $2 billion. The companies confirmed the agreement (paywall) after news of the deal broke yesterday (Sept. 24).

A combination of the two brands would see Michael Kors stretching further in its embrace of full-on luxury. Though it does compete directly in high-end fashion with its Michael Kors Collection brand and now Jimmy Choo, the brand itself is still known more for simple, refined handbags and clothes costing a few hundred dollars. Those products are far more accessible financially and stylistically than Versace’s baroque creations, which routinely run into the thousands of dollars.

It’s a different course than Coach, its American rival in so-called “affordable luxury,” has taken in its own bid to become a fashion conglomerate. Over the past few years, Coach has expanded by buying footwear label Stuart Weitzman and handbag maker Kate Spade, both of which also fall on the less-expensive side of the luxury spectrum. Though Coach was one of the companies reportedly interested in snapping up Versace (paywall).

Both Coach and Michael Kors have been working to solve similar problems, as they’ve looked to move beyond their one-time reputations as staples on the US department-store sales rack. In 2016, each cut back on its presence (paywall) in the struggling department-store channel, and started to reduce the widespread discounts that were eroding their brand cachet. Both companies saw sales fall for a time, but found success selling more expensive products at full price to a more affluent clientele. More recently they’ve grown through acquisitions and sought to increase sales in regions such as Europe and luxury-hungry Asia.

Michael Kors is acquiring its stake in Versace from Blackstone, the private equity firm that bought 20% of Versace in 2014 to help fund an expansion. The company at that time seemed set for strong growth, having weathered the struggles it faced after its founder, Gianni Versace, was murdered in 1997. Donatella Versace took over as artistic director, and the Versace family has remained committed to the company.

But Blackstone reportedly found the brand’s performance disappointing and wanted an exit. ”They gradually persuaded the family to look into a possible sale and introduced them to a series of buyers, including Michael Kors,” one source that wished to remain anonymous told Reuters. With the cash and the ambition, Michael Kors has stepped up.

This story was updated after Michael Kors and Versace confirmed news of the deal.