Deal gives Michael Kors new avenues for growth as handbag market slows
Jimmy Choo shoes are pictured in the first German Saks Off 5th chain store in Düsseldorf, Germany. The company has been up for sale since April. Photo: Ina Fassbender/Zuma Press
LONDON—Michael Kors on Tuesday said it has agreed to acquire upscale shoemaker Jimmy Choo for £896 million ($1.17 billion), as it looks to find new avenues for growth amid a slowdown in its core handbag business.
Buying Jimmy Choo gives Michael Kors a foothold in the fast-growing luxury shoe business and a well-regarded name to add to its stable, but doesn’t solve the bigger problem facing its handbag business: Convincing American shoppers to pay full prices.
Sales of handbags are lagging amid fierce price competition and an environment of heavy discounting that has pressured profits and encouraged women to trade down to smaller, less expensive purses. The handbag market has slowed to about 2% growth from as much as 15% growth six years ago, according to Craig Johnson, an analyst at Customer Growth Partners.
But analysts say at least some of Michael Kors’ problems are its own fault.
Brands such as Michael Kors have stalled after pushing distribution too hard and selling through discount channels, said Exane BNP Paribas’s head of luxury research Luca Solca. “My view is there could be a less supportive market but clearly Michael Kors is suffering from company specific problems,” he said.