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Michael Kors & Jimmy Choo

Michael Kors has been suffering from a declining demand in luxury handbags over the last couple years, so the luxury fashion brand decided to purchase Jimmy Choo in order to diversify its product line and create a global fashion luxury group. Both company boards have approved the acquisition; however, the deal, worth about $1.2 billion, is expected to officially close in the fourth quarter of 2017.

Michael Kors Steady Decline

Jimmy Choo is a high-end footwear and accessories brand based in London. The massive acquisition is a result of Michael Kors’ declining value in the luxury fashion market. Intense price competition and lack of demand in the luxury handbag industry forced Michael Kors to sell a good portion of their handbags to discount department stores, which naturally decreased the value of the brand name and deterred customers from buying the company’s products at full price. In fact, Michael Kors has been closing a number of stores and reducing its exposure in department stores in an effort to boost its exclusivity in the luxury market.

The company’s stock has fallen 19% since the beginning of 2017, a trend that has continued since their peak in February 2014, where shares reached an impressive $100. As of market close on Monday, Kors’ shares were at $33.44.

The Rise Of Jimmy Choo

On the other hand, Jimmy Choo has risen to prominence since the company was founded in 1996. The luxury show brand gained notoriety in the late ‘90s and early ‘00s with help from public figures like the late Princess Diana and popular “Sex and the City” character Carrie Bradshaw. Although it was bought and sold by private-equity investors three times in 15 years, JAB Holding Co., owned by the billionaire Reimann family, purchased a 68% stake in the company in 2011 for just over $650 million. JAB has expressed a desire to steer focus toward its food and beverage businesses after recent acquisitions of companies like Caribou Coffee Co., Krispy Kreme Doughnuts, and Panera Bread; therefore, it was not a huge surprise that the company decided to part ways with the luxury shoemaker.

It is clear that the Michael Kors name still carries some weight though, because Jimmy Choo’s stock has risen almost 17% since the deal was announced on Monday. Executives for the luxury brand have made it clear that Jimmy Choo will still be operated independently. This could be the first of many moves to be made by Michael Kors, as executives have hinted at the acquisitions of more companies to create a group of powerful brands within the luxury fashion industry.