On Tuesday, Michael Kors Holdings said it had agreed to buy the shoe company Jimmy Choo for 896 million pounds, or about $1.2 billion, the latest push by an American high-end fashion house to find new sources of growth and what its chief executive characterized as the first step in building a bigger international luxury group.
Many upscale brands like Michael Kors have faced plummeting sales and tepid profits. Mall traffic in North America has declined sharply, while shoppers who have traditionally been loyal to the so-called middle market have gravitated toward brands at extremes of the style and price spectrum.
The trends have played well for e-commerce giants like Amazon, fast-fashion brands like H&M and Zara, and luxury houses like Gucci. But it has left companies like Michael Kors — once the runaway leader of the “accessible luxury market” — exposed.
Jimmy Choo, which shot to prominence thanks to celebrity patrons like Princess Diana and the “Sex and the City” star Sarah Jessica Parker, could give Michael Kors a new avenue for growth.
“Acquiring Jimmy Choo is the beginning of a strategy that we have for building a luxury group that really is focused on international fashion brands,” John D. Idol, the chairman and chief executive of Michael Kors Holdings, said in an interview.
Though both Michael Kors and Jimmy Choo are red-carpet favorites, they appeal to different segments of the population.
Michael Kors, known for fashion-forward designs and competitive prices, is heavily reliant on outlets and department stores, where deep discounting is common. Leather purses sell for as little as $70 and handbags are available for $95.
Jimmy Choo occupies a higher price point: Open-toe slip-on sandals sell for $425, while crystal-encrusted shoes with the brand’s signature sky-high stilettos go for nearly $3,000. The brand brings not only a different range of customers, but also hefty profit margins and an upmarket aura.
The deal for Jimmy Choo came just months after Coach agreed to a $2.4-billion deal to buy the American handbag and accessories brand Kate Spade, apparently hoping that the combination of two affordable luxury brands could help it carve out new territory in a crowded market. Coach acquired its own upmarket shoemaker, Stuart Weitzman, in 2015.
Michael Kors is in need of an update.
The brand became a household name thanks to its charismatic and eponymous founder, who appeared for 10 seasons as a judge on the fashion-based reality television show “Project Runway.” His approach to fashion focused on the idea that every woman wants to look “pretty and rich.” For years, Michael Kors enjoyed soaring revenues as customers embraced its glitterati-inspired accessories at affordable prices.
But the company has languished since going public in 2011 in what was, at the time, the most successful offering by an American fashion label. In May, it downgraded its sales forecasts for the rest of the year and said it would close as many as 125 of its full-price retail stores. Its share price has lost a fifth of its value in 2017 and is now $34.91.