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Michael Kors Acquires Versace, Takes on Capri Holdings Moniker

Michael Kors announced the purchase of Italian luxury label Versace Tuesday. The deal for $2.12 billion is the latest acquisition for the apparel and accessories company, which set out to build a fashion conglomerate last year.

Along with the acquisition announcement, Michael Kors Holdings Limited unveiled a new name, Capri Holdings Limited.

The company highlighted its growth plan for the luxury label, which includes achieving $2 billion in revenue globally, adding about 100 stores, powering e-commerce and omnichannel initiatives, and boosting accessories for men and women from 35 percent to 60 percent of revenue.

Similarly, Kors pointed to the ways in which Versace will benefit the holding company, which include boosting revenues for the group to $8 billion, increasing penetration outside the U.S.—especially in Asia—and facilitating operational synergies.

“Luxury, particularly globally, continues to grow and impress with its numbers. There aren’t that many houses that have real heritage that’s been unblemished. Versace is one,” said Gary Wassner, CEO of factoring and finance firm Hilldun Corporation and InterLuxe Holdings LLC co-founder and chairman. “It’s a great purchase for Kors, albeit an expensive one. But it gives them flexibility in the global market, and more leverage when it comes to getting prime real estate for both brands internationally.”

Last year both Kors and Coach, now Tapestry, signaled their intentions at brand expansion with the acquisitions of Jimmy Choo and Kate Spade, respectively. At the time, the aspirations were likened to building fashion houses on the scale of Europe’s LVMH and Kering, and adding the Italian brand certainly brings that level of cache.

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“We’re finally starting to invest in global brands that have strategic value, not just investment value,” Wassner noted.

For its part, Kors sees revenue and earnings growth ahead.

“For over 40 years, Versace has represented the epitome of Italian fashion luxury, a testament to the brand’s timeless heritage. We are excited to have Versace as part of our family of luxury brands, and we are committed to investing in its growth. With the full resources of our group, we believe that Versace will grow to over US$2 billion in revenues,” said John D. Idol, chairman and CEO of Michael Kors Holdings Limited.

Idol added he’s looking forward to working with Donatella, who along with her brother Santo and daughter Allegra, will be shareholders in Capri Holdings.

Versace called the deal “exciting,” saying that she is proud of how far the brand has come and looks forward to the future. “We believe that being part of this group is essential to Versace’s long-term success. My passion has never been stronger. This is the perfect time for our company, which puts creativity and innovation at the core of all of its actions, to grow.”

The Versace brand will continue with its current management team, helmed by CEO Jonathan Akeroyd.

Michael Kors has been in turnaround mode, following in the footsteps of its peers in an attempt to woo more customers through greater control over its distribution, product and pricing. Bloomberg pointed to the brand’s gross margin improvement in the second quarter, achieved by less discounting and more appealing goods. Jimmy Choo revenue was up 12 percent in the same period, exceeding expectations.

“While no retailer will ever declare the discounting war ‘won,’ KORS has signaled their belief in their momentum by projecting a 250-basis-point increase in operating margin in the coming year,” said Bill Lewis, a director in the retail practice of AlixPartners LLP, adding it “seems to be not only a bet that the deal won’t put that progress at risk but that it will help KORS grow at a faster clip and trade at a higher earnings multiple.”