Capri Holdings is reportedly exploring the sale of its luxury brands Versace and Jimmy Choo, with plans to refocus on its core Michael Kors label. The potential move comes after Capri’s $8.5 billion merger with Tapestry was blocked by the Federal Trade Commission last month due to antitrust concerns.
A Strategic Pivot Amid Declining Performance
Sources indicate Capri is working with Barclays to facilitate the sale process, which is still in its early stages. It remains uncertain whether Versace and Jimmy Choo will be sold together or separately. The decision follows Capri’s struggles with declining sales across its brands, particularly in the luxury sector, which has faced global demand challenges.
In the second quarter of 2024, Capri reported a 16.4% drop in overall sales, with Versace experiencing the steepest decline at 28.2%. Michael Kors also saw a 16% drop, while Jimmy Choo posted modest gains driven by improved wholesale revenue. The company’s stock has plummeted nearly 50% since the Tapestry merger collapsed, leaving Capri under pressure to reassess its strategy.
Focus on Michael Kors
If the sale proceeds, Capri intends to use the proceeds to reduce debt and reinvest in Michael Kors, which remains its most significant revenue driver. Michael Kors accounted for 68% of Capri’s fiscal year 2024 sales, dwarfing the contributions of Versace and Jimmy Choo. Despite its recent challenges, Michael Kors is seen as the company’s best bet for long-term stability.
Capri CEO John Idol has outlined plans to rejuvenate Michael Kors through marketing initiatives, product assortment adjustments, and store optimization. The company aims to close around 75 stores while renovating 150 locations to better align with consumer preferences.
Luxury Market Dynamics
The potential divestiture comes amid a broader shakeup in the luxury market, where traditional players face stiff competition from new entrants. Chinese brands like BYD have gained significant traction, and established names are grappling with declining consumer spending in key markets.
Capri’s missteps, particularly with Versace, have compounded these challenges. Analysts have pointed to the brand’s “elevation strategy,” which involved price hikes and reducing iconic designs, as a factor in its decline. This approach alienated aspirational consumers, a demographic that had been vital to Versace’s success.
Barriers and Opportunities
While the sale could provide Capri with much-needed liquidity, it faces hurdles. Finding buyers willing to pay a premium for the struggling brands could prove challenging. Barclays is reportedly preparing a data room to attract initial bids before Christmas, potentially leading to an auction-style sale process.
Market speculation suggests potential interest from major luxury players like Kering or private equity firms. However, analysts caution that political and economic uncertainties could impact the sale’s valuation and outcome.
Future Prospects
If Capri successfully divests Versace and Jimmy Choo, it will mark a significant shift for a company that once aspired to rival luxury giants like LVMH. By concentrating on Michael Kors, Capri hopes to stabilize its business and regain investor confidence.
This strategic move underscores the challenges of balancing brand portfolios in a rapidly evolving market. Whether the sale materializes or not, it signals Capri’s intent to prioritize profitability and long-term growth over maintaining a diverse but underperforming brand lineup.