Michael Kors Buying Versace Makes Sense. But What About Money?

On Tuesday, the frenzied speculation ended. Michael Kors Holdings Limited announced the acquisition of Versace. Along with buying one of the last independent fashion houses for $2.12 billion, the budding conglomerate will change its name to Capri Holdings Limited.

Just last year, Michael Kors bought British shoe label Jimmy Choo. Now, with both the British shoe line and Versace in its arsenal, Michael Kors is evolving from its individual identity into a true industry power player.

Donatella Versace, sister of the brand's late founder, will remain the line's creative director. According to a press release, the Versace family (Donatella, brother Santo, and niece Allegra Versace Beck) will receive $177 million from the purchase.

Jonathan Akeroyd, who has served as CEO of Versace since 2014, will also stay on, along with members of the house's "senior management and design teams."

Donatella Versace made clear, in no uncertain terms, that operations will stay in Milan.

As she told WWD the afternoon of the deal, "Versace is an Italian company and it will remain in Italy. Not only this, but we will also create a lot of jobs. If the company grows, you need more people...We did not become Americans—we are Italian and will remain Italian."

This move calls to mind the great Coach rebranding of 2017. In an effort to draw attention away from just one name, and remind consumers that it also owns Kate Spade and Stuart Weitzman, Coach, Inc. became Tapestry.

According to Elizabeth Shobert, Director of Marketing and Digital Strategy at fashion analytics company Style Sage, it’s “no surprise” Kors opted for the same route.

“Kors acquired Jimmy Choo last year and with that they were able to prove that they could play at a higher price point and grow their revenues with it to the tune of a $172.7 million boost in quarter one,” Shobert told The Daily Beast. “In addition, these American luxury brands want to be more global in scale to compete with the LVMH’s and Kering’s of the world.”

Some critics were quick to bemoan the merger.

Kors has earned prominence in department stores that are known for heavy discounting. Versace has curated an exclusive reputation as its beloved supermodels, hip-hop stars, and celebrities.

“Gianni Versace is rolling in his grave," many tweets read. (The line’s founder was murdered in 1997.) Would Versace, a storied line that sells gilded golden dresses for upwards of $3,000 soon appear in bargain basements?

Snobbery aside, the deal was a strategic one. As Laurence Newell, a managing director at consultancy firm Brand Finance told The Daily Beast, “Versace and Michael Kors are positioned to somewhat different markets, but when you look at the deal from the point of establishing a brand portfolio, it makes sense.”

In fact, it may be an asset that both brands have such staunchly opposing reputations.

“I think that these lines compliment each other without cannibalizing each other,” Newell said. “They don’t get in each other’s way. That was probably the basis of the acquisition—Michael Kors has a new card on the table, and that card affords them to make plays they didn’t have before.”

While social media users might accuse Versace of selling out, Michael Kors understands Versace’s unique client base. Rather than alienating diehards, Michael Kors has the ability to expand the label’s influence to new markets.

After all, there are stylish people everywhere—not just in Milan, but in Tulsa, Oklahoma, too. “Versace will be much closer to the US consumer than it has been historically,” Newell predicted. “The US is an enormous market, and some spheres can be quite sophisticated. There is a new audience that will have access to Versace, and they understand what the line brings to the table.”

Before Versace purists quiver in their Medusa medallion booties, know that the line probably won’t end up in TJ Maxx just yet. (But would such access really be such a bad thing?)

“If Kors is smart, they are going to ensure that the Versace legacy and design ethos remain intact, while at the same time giving them the strategic resources they need to compete more effectively with other key luxury players,” Shobert said.

Such investments could include improving Versace’s technology, e-commerce flow, and supply chain.

What’s more, Michael Kors understands how important Versace is in name alone—that’s probably why they bought it in the first place.

As Newell said, “It would be safe to say that half of what Michael Kors is buying when acquiring Versace is the intellectual property and the intangible value behind the brand. They’re not too interested in the factories or the hard assets. They understand that Versace is uniqueness, diversity, and expression.”

Versace, of course, also is money. According to Shobert’s StyleSage’s data, two-thirds of the the collection is priced above $500. Only 16 percent of Kors’ offering are.

By nabbing Versace, the average price of a Capri product will go up. If Jimmy Choo gave Michael Kors $172.7 million in just one quarter, then the number will only continue to rise with the addition of Versace.

What makes those numbers even more impressive is that the past few years have been particularly rough on Michael Kors due to diminished sales and over-discounting. Despite a new Italian name, the road to Capri can be viewed as a good, old fashioned American comeback story.