Michael Kors to buy Versace for $2.1B and change its name

Affordable fashion brand Michael Kors said Tuesday it is buying Italian luxury brand Gianni Versace for $2.12 billion.

Kors, which will be renamed Capri Holdings Ltd., said it expects to increase Versace's revenue to $2 billion and increase the number of its retail outlets to 300 from 200.

As part of the deal, Versace CEO Jonathan Akeroyd will continue to lead the iconic brand's management team, while Gianni's sister, Donatella, who has helped run the company since her brother's murder in 1997, will continue to oversee its creative initiatives.

Shares of Kors were down about 2 percent in premarket trading following the news.

The deal could also mean that those iconic $2,000-a-pop Versace gold-colored jackets once worn only by Hollywood elites, including Michael Jackson, Paul McCartney and Madonna, may soon become more affordable.

Kors could potentially turn one of the world’s most highly regarded luxury clothing brand into a household name, according to fashion insiders.

“Michael Kors is not buying Versace to keep its luxury business going,” Mark Weber, fashion expert and former CEO of LVMH Inc., told FOX Business. “I believe he is going to create some sort of brand diffusion with the essence of Versace’s DNA.”

Weber, who has a four-decade career working with top retail brands such as Calvin Klein, Phillips Van Heusen and Donna Karen, said the overall luxury sector has limited growth and the only way for it to grow is by greater distribution.

“I can’t tell you whether he is going to sell dresses for $100 or $300, but I can tell you he is going to find a way to reach a lot more customers by broadening its playing field,” Weber said.

Kelly Collins, president of Worth Collection agreed, and said while she does think the deal may result in Versace being more affordable for some, she does not see it becoming "a contemporary label."

"Kors has Michael Kors and Kors collection, which are two very different brands and pricing strategies. I would foresee Versace being part of that strategy for the Kors Collection," Collins added.

In recent years, Versace, which is still a favorite among celebrities, has struggled to grow sales and has become second to its Italian rival Gucci, who has found a way to grow, especially among millennials. According to the Wall Street Journal, sales for Gucci were up 45 percent in 2017 from 2016.

Weber said Versace hasn’t been able to attract the next generation and an acquisition with Kors could help them have a multi-tier strategy going forward.

Florence Allday, an analyst from Euromonitor International, adds that while the news of the acquisition may come as quite a shock to followers, admirers and even customers, declining growth and stiff competition from other brands, including Louis Vuitton and Dior, make the sale “less surprising” to insiders.

She said the deal would now give Kors the ability to “properly compete with Kering’s power brand, Gucci.”

Over the last two years, Kors has been aggressively repositioning itself as the overall retail market has seen major shifts due to competition from online retailers. In 2016, it took major steps to protect its brand equity by pulling back its wholesale inventory levels at certain department stores that were diluting its brand by selling its products at deep discounts.

“We believe that the North America retail environment remains highly promotional, which is impacting the long-term brand equity of Michael Kors,” CEO John Idol told analysts in 2016, according to a FactSet transcript. “We will be actively decreasing our exposure to the wholesale channel by reducing inventory to focus on a higher level of full-price sell-throughs and a lower level of markdowns.”

Then last year, the brand made its first acquisition beyond its namesake, by snapping up high-end shoe brand Jimmy Choo for $1.2 billion.