Michael Kors’ global luxury group, Michael Kors Holdings Limited, has a first major test: To turn Jimmy Choo into a billion-dollar brand, doubling the revenue of the first label it acquired.
To do that, CEO John Idol said on the brand’s second-quarter earnings call that the company plans to open more international stores, revamp the Jimmy Choo e-commerce store, increase its inventory in the accessories category (bags, leather goods, sunglasses, watches, scarves and hats), and grow its budding men’s business.
“We’re in the process of laying the foundation for a global luxury group, a leading luxury house renowned worldwide, and that starts with Jimmy Choo,” said Idol. “We believe that bringing brands like Michael Kors and Jimmy Choo together strengthens our growth opportunities, increases our product and geographic diversification, and builds a platform for future acquisitions.”
Jimmy Choo, which Michael Kors purchased in July for $1.2 billion, reported record revenue in 2016 of $460 million, an increase of 2 percent over 2015. Overall, for its second quarter of financial year 2018, Michael Kors revenue increased by 5 percent year-over-year, to $1.2 billion.
In the luxury industry, increased competition from global brands and more nimble startups and an ongoing period of transition for retail has forced fashion brands to consolidate. Earlier this year, Coach bought Kate Spade for $2.4 billion, after purchasing shoe brand Stuart Weitzman in 2015. The company rebranded its holding group to Tapestry in October, in a move meant to distance the holding company from the Coach brand.
The moves of Coach and Michael Kors have signaled the start of an American luxury arms race, with each brand gunning to establish a network of brands in a similar format of Kering, LVMH and Richemont in Europe. But these luxury brands joining forces is most often a strategy born out of struggle.
“Brands looking for more market power and share are seeing consolidation as the only way to grow,” said Steven Dennis, founder of the luxury and retail consulting firm SageBerry and former svp of strategy at Neiman Marcus. “The industry just isn’t growing very much right now, and that’s bad news for all of these public companies.”
After hitting a period of slumped sales growth, Michael Kors’ Runway 2020 restructuring plan is currently underway. The plan promises to boost product innovation while reducing the amount of inventory across categories, grow e-commerce sales, close 100 underperforming retail stores, and cut back on promotions.
As the Michael Kors brand undergoes its overhaul, doubling Jimmy Choo’s business would infuse the company with a needed boost of growth. While navigating the efforts in physical and online retail, and growing categories like accessories and menswear, Idol said the growth strategy is set to play out over the next two years. The store openings will predominantly take place in Europe and Asia, where brick-and-mortar hasn’t been over-built like it has in the U.S., and a new online store will launch in the next year.
Unlike Ralph Lauren, which has looked to regional partners like Tmall, JD.com and WeChat to grow in Asia, the brand’s strategy in all markets is to grow through its own channels. That means it won’t be selling on Amazon for the time being, either.
“While it’s too early to ascertain what the future is for us on Amazon and similar platforms, we’re prioritizing our own digital channels as we grow,” said Idol. “Today, the number one place the customer engages with your brand is online. That doesn’t mean the physical store isn’t still important, but we need that first engagement with the brand to be owned by us.”
Idol added that while the Jimmy Choo brand will be able to act faster on these growth initiatives now that it’s part of Michael Kors Holdings Limited, there will be little to no synergies in product manufacturing and internal structuring since Jimmy Choo is a “very different business.”
“The theme of most mergers is ‘if it’s not broke, don’t fix it,’” said Dennis. “Companies purchase brands for cachet and its engaged customer base. Then it just needs to give it the tools it needs to grow.”