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Michael Kors Is Nearing Big Versace Bet That May Be Too Bold

Kim Bhasin
Models present creations for Versace fashion house during the Women's Spring/Summer 2019 fashion shows in Milan, on September 21, 2018. (Photo by Miguel MEDINA / AFP) (Photo credit should read MIGUEL MEDINA/AFP/Getty Images)

Of all the bets Michael Kors Holdings Ltd. could have made on its quest to become an American house of luxury labels, Versace, and its distinct rococo style, stands out as particularly bold.

Kors is nearing an agreement to acquire Gianni Versace SpA in a deal that would value the Italian fashion house at about $2 billion, Bloomberg reported Monday. Investors are skittish about the proposition, sending Michael Kors shares down the most since May.

Chief Executive Officer John Idol has used the words “heritage,” “size” and “scale” to describe the type of luxury brands he’s looking to add to the Kors stable. Versace has those three prerequisites covered. It’s a 40-year-old Italian house with an international presence and widespread pop-culture relevance. Last year, Versace had revenue of 686 million euros ($807.3 million) and returned to profit, according to figures provided by the company. Yet Kors would inherit a business with several issues.

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“Despite its profile, Versace has struggled to grow sales,” said Neil Saunders, managing director of GlobalData Retail. Michael Kors wouldn’t be buying “a perfectly performing brand,” but one that “needs work and some repositioning,” he said. That work includes “toning down some of the brasher elements of the brand which are now out of step with the more subtle tone preferred by modern consumers.”

Short-Term Disruption

While Saunders called the deal “additive,” he said it may cause disruption in the short term and take several years to reveal the benefits.

Kors shares fell as much as 9.5 percent to $65.82 Monday on word a deal was close. The stock had been up 15 percent this year through Friday’s close.

Versace, with its Medusa-head logo, is one of the more outlandish major Italian fashion labels. Artistic Director Donatella Versace’s flashy designs celebrate extravagance and excess. Her runway show this month integrated the vivacious color and dazzling patterns the label has become known for -- a psychedelic amalgam of soft florals layered on stripes, checks or more florals. The bashful should look elsewhere for their clothes.

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Though it’s not for everybody, it’s certainly for somebody. In recent years, Versace has grown to become a wealth symbol for the nouveau-riche. It’s often mentioned in pop music as a label to aspire to -- or brag about. Founder Gianni Versace was a fashion icon who dressed rock stars and princesses, and that flashiness remains aspirational today.

Couture Cred

So if managed correctly, the payoff could be sizable. Versace would give Michael Kors a foothold in high-fashion. Its namesake label is known for “affordable luxury” and mass appeal, selling leather handbags that cost a few hundred dollars that can be found at Macy’s or the discount rack at TJ Maxx. Its purchase of shoemaker Jimmy Choo Plc last year added to its couture credibility, giving it $600 sandals and $1,000 pumps. Versace’s clothing ranges from $350 T-shirts to $10,000 skirts worthy of red carpets at the Oscars or Met Gala.

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Kors is plotting a different course than that of longtime rival Tapestry Inc., formerly known as Coach Inc. Tapestry, which is also building a stable of brands, has stayed both near its own price point and its New York headquarters. The two labels it has acquired, Kate Spade and Stuart Weitzman, are U.S. brands and play in about the same price range.

Italian newspaper Corriere della Sera reported earlier that Versace could be sold this week for about $2 billion, with several groups interested including Kors and Tiffany & Co.

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