Experts in the luxury industry have described the recent takeover of luxury brand Jimmy Choo by Michael Kors as the good step in the right direction signalling a huge appetite for big acquistions in the luxury industry.
The $1.2 Billion deal came to industry analysts as a surprise due to the negative growth the global luxury industry has experienced in the half year.
Paul O. Andrew, chairman, Africa Wealth Report, Geneva, told TLR in an exclusive online interview the acquisition is positive despite the sluggish economic tempo in the luxe market since second quarter (Q2) 2017.
“It shows there is huge appetite for big ticket acquisition,” he said. “There are investors willing to bet on this type of transaction as it also implies consumers will still spend on the luxe market. This is good for 2017 as the only deal of that size in the luxe fashion industry; more acquisitions to come.”
Michael Kors is paying 230 pence a share for the London-listed company whose footwear was made famous by the late Princess Diana, Beyoncé and Sex in the City’s Carrie Bradshaw, among others. That represents a gain of just over 60% for shareholders who bought into it at its initial public offering in 2014.
The deal for Kors shows a step back upmarket, after an misguided over-expansion into brick-and-mortar shops when it chased volume instead of defending the value of its brand. Besides the footwear business, the acquisition has added another high-value brand to Kors’ core business of bags and accessories.
“Michael Kors has cash and could afford a buyout of Jimmy Choo who needed cash. Well both will combine their assets to work towards a common accord and mandate! Jimmy Choo remains intact as in Brand DNA whereas Michael Kors will tap further into Jimmy Choo’s market. The combination of both could help Michael Kors get into the high-end tire market,” added Andrew.
Furthermore, Michael Kors said it has agreed to buy shoemaker Jimmy Choo for just over $1 billion as it continues its efforts to recover its lost prestige.
Jimmy Choo’s current management of CEO Pierre Denis and creative director Sandra Choi will remain in charge of their business., the companies said in a statement.
“This continuity of leadership will ensure that the DNA of Jimmy Choo is maintained as we work together to continue to grow the brand globally,” said Kors CEO John D. Idol.
It’s the fifth time that Jimmy Choo has changed ownership since it was founded in the East End of London in 1996 by Choo and Tamara Mellon. JAB had bought it through a subsidiary in 2011 for 525 million pounds, or around $870 million at prevailing exchange rates.
In April, it puts itself up for sale with the consent of strategic shareholder JAB Luxury, the German-owned family investment company. JAB wants to focus more on premium food and drink retail, as illustrated by its acquisition of Panera Bread in April. JAB is also trying to sell its other upmarket footwear brand Bally.
With the new ownership, Andrew explained Michael Kors is aiming to do the LVMH business model.
“Hence a rebranding of the corporate organisation is likely to take place or another deep pocket investor coming to take out the holding structure of Michael Kors…watch out for that in about 5yrs-10ys. And this is what the market is evolving into. So, Michael Kors will possibly scale his line to match Jimmy Choo’s. I see that happening shortly. And most likely, he’s got more funding partners ready to back him on other funding spree.”