The business of fashion: A look at Michael Kors' purchase of Versace

The Michael Kors store in Beverly Hills, California is seen on September 25, 2018. Fashion house Michael Kors announced on September 25, 2018, it had agreed to buy Italian luxury giant Versace, signalling an intention to move deeper into the international big league.ROBYN BECK/AFP/Getty Images

Michael Kors Holdings announced Tuesday it was buying Versace, the Italian fashion house, for US$2.1-billion. The deal ends the independence of one of the last prominent stand-alone fashion brands and is the biggest effort yet by Kors to build an empire.

Kors also announced the company will change its name to Capri Holdings Ltd., to reflect the collection of brands it has acquired. Kors previously bought Jimmy Choo in 2017 for 896-million pounds (US$1.2-billion at current exchange).

Kors said the purchase is a “milestone” as it continues to grow its empire. The Michael Kors brand had its roots in the “middle market” of the luxury sector and relied on outlets and department stores, where deep discounting is common. But mall traffic has declined in North America – Kors’ biggest market – and shoppers were changing, too, increasingly seeking brands at the extreme of the style and price spectrum.

The Versace store in Beverly Hills, California is seen on September 25, 2018.ROBYN BECK

The deal by the numbers

Kors, in a statement, said it plans to increase Versace’s sales to US$2-billion annually from the current US$850-million, as well as expand its retail network from 200 stores to 300, looking at accelerating e-commerce development.

According to Kors, the purchase will “diversify our portfolio from 66% Americas to 57% Americas, 23% Europe to 24% Europe, 11% Asia to 19% Asia.” Versace was “an opportunity to grow our group’s revenues to US$8 billion in the long term," said the company.

Versace, spring 2019, in Milan, Sept. 21, 2018.VALERIO MEZZANOTTI

Why Kors scored big with the purchase

Devoted followers of fashion who are clutching their faux pearls over the Michael Kors purchase of Versace for US$2.12-billion should keep in mind that it’s an acquisition, not a merger. It’s the second major company added to portfolio of parent company Michael Kors Holdings (now renamed Capri Holdings); the company bought upscale footwear brand Jimmy Choo last year. While Michael Kors fans might see this move as a way for the company to diversify its luxury holdings, the reaction from the Versace camp has been more emotional, writes Nathalie Atkinson for The Globe. Read more here on why Michael Kors scores with its Versace acquisition (for subscribers).

Models present creations at the Versace show during Milan Fashion Week Spring 2019 in Milan, Italy, September 21, 2018.Stefano Rellandini/Reuters

What does this mean for the Versace family?

Versace, which has been controlled since its founding by the family that gave it its name, will keep familial ties when Michael Kors takes hold.

The Versace family will stay on as shareholders in the combined company. Versace’s brand chief executive, Jonathan Akeroyd, will remain in that position. Artistic director Donatella Versace will also stay at the creative helm, a component that was “essential” in the sale. Her gowns can sell for thousands and is considered a bit part of the company’s strategy to woo more big spenders, particularly in Europe and Asia.

Donatella Versace, sister of Versace’s late founder, Gianni Versace, said she could not wait to enter a new era for the brand that held her family name.