Acquiring Luxury

Written by Avni Bodwadkar 

What was unexpected, however, was the news that Coach (now known as Tapestry) was acquiring Kate Spade, soon followed by Michael Kors’ announcement to acquire Jimmy Choo, despite rumoured competitive bids from Coach.

Louis Vuitton Moët Hennessy, Kering, and Richemont have long been the luxury industry’s ruling giants. Thus, it is generally not surprising to hear of one of these conglomerates acquiring a young, trendy brand. What was unexpected, however, was the news that Coach (now known as Tapestry) was acquiring Kate Spade, soon followed by Michael Kors’ announcement to acquire Jimmy Choo, despite rumoured competitive bids from Coach. Though both of these companies generally cater more to the “middle tier” of the luxury industry, they are clearly now seeking to build luxury groups to rival the big three.

Analysts have pointed to other smaller luxury brands that have now become potential targets for Michael Kors and Coach. While it was rumoured that Coach was considering making an offer for British brand Burberry prior to its Kate Spade deal, at the time Burberry was considered too big. However, now that Coach is expanding, it is not unrealistic to think that it could add Burberry to its growing portfolio. Other potential luxury acquisitions include Italian brand Furla and French company Longchamp.

However, the trend of acquisitions is not just limited to Michael Kors and Coach; this year has seen a 30% increase in the number of mergers and acquisitions in the international luxury sector. The Qatari royal family bought the French fashion house Balmain, adding to its portfolio which already includes Valentino and Pal Zileri.

These acquisitions come at an interesting time for the luxury industry; coping with a downturn in mall and department store sales along with changing consumer tastes has forced some brands to reduce their number of stores. It seems that in these uncertain times, Coach and Michael Kors are trying a different  approach—diversifying their portfolios rather than closing stores, as Ralph Lauren has.

If either one of these two companies succeeds, this will be the first successful American luxury group.

Previous attempts from American brands such as Pegasus Apparel were unprofitable, and the company had to sell its acquisitions. In essence, only time will tell whether or not Michael Kors or Coach will be successful in its endeavors to become the first successful American luxury brand, due to the changing retail landscape.