The news that Michael Kors is to buy Jimmy Choo for £896m should come as no surprise.
Back in 2015 when it was announced that Michael Kors competitor Coach was to purchase luxury footwear brand Stuart Weitzman, there would have been much gnashing of teeth at the Michael Kors headquarters in New York.
This would have become a wail in May this year when it was announced that Coach was buying luxury handbag brand Kate Spade.
However, that will have dissipated now with the purchase of Jimmy Choo.
This option was opened up by the decision of Michael Kors’ German owners, the JAB Holding Company, to migrate from the luxury market to focus on their other businesses, such as coffee brand Douwe Egberts.
On the news of the deal, shares in Jimmy Choo jumped 17% while Michael Kors’ share price recovered slightly after a rollercoaster 12 months.
So what’s going on here? Why are luxury brands being snapped up?
The answer is simple and lies in two things: the global marketplace and the brand itself.
“Michael Kors has systematically diluted its brand through promotions and discounting”
Take Michael Kors; a combination of discounting, too many stores, brand uncertainty on the part of its customers leading to declining revenues and a share price which fell by nearly 60% in the last 12 months.
As shoppers are increasingly drawn to the extremes of the market, both discount and luxury, Michael Kors was caught in the middle. A potentially fatal position to be in which was not sustainable. So something had to be done.
Clear brand values
In March this year, Jimmy Choo announced record revenues and the following month it indicated that it was seeking a new owner.
For Michael Kors, an opportunity to not only reposition but, in Jimmy Choo, an opportunity to exploit new avenues of growth globally.
“Jimmy Choo is very clear on where the brand sits, there is no ambiguity”
Once seen as a luxury brand, Michael Kors has systematically diluted its brand through promotions and discounting to the point where customers were no longer willing to pay full price.
Jimmy Choo is very clear on where the brand sits, there is no ambiguity – if your budget only stretches to £100, don’t bother. It inhabits a much more rarefied place and customers know it.
It’s a perfect example of the need to understand a brand and what it stands for and, conversely, what happens when that view becomes blurred.