How Michael Kors buy will boost Jimmy Choo’s headway in China

The American accessible luxury label Michael Kors agreed on July 25 to purchase premium shoemaker Jimmy Choo for £896 million (approximately $1.17 billion), confirming early market speculation that Kors was a bidder.

Michael Kors and Jimmy Choo are two brands that both have strong market recognition and a sizeable presence in China. The company indicated, in a statement, that after the acquisition (which is set to be complete in the fourth quarter of this year), it would maintain the current management team, which includes CEO Pierre Denis and Creative Director Sandra Choi. But the partnership is likely to have an effect on the business of each of the brands in China.

One effect is that the acquisition is very likely to accelerate the expansion of Jimmy Choo into the Chinese market, according to Luca Solca, the Head of Luxury Goods Sector of Exane BNP Paribas.

In recent years, Jimmy Choo has gradually shifted the focus of its business to China as its growth in the West has met a bottleneck. In the company’s 2016 Annual Report published on its official website, the brand called the Chinese market a “white space,” saying that they “remain underpenetrated relative to many larger luxury peers” in the world’s second-largest economy.

Photo: Jimmy Choo/Weibo

Michael Kors’ sophisticated social media strategy is set to benefit Jimmy Choo. Since Michael Kors’ official entry into the Chinese market in 2011, the brand has worked on many creative social media campaigns with high-profile Chinese celebrities including Victoria’s Secret supermodel Liu Wen and actresses Yang Mi and Gao Yuanyuan. These have been well-received.

The brand is also among the pioneers in online e-commerce in China. In October 2016, Michael Kors launched its online store in the country, almost one year earlier than the recent adopters Gucci and Louis Vuitton. Jimmy Choo, which only offers limited online service (such as a public WeChat account) to Chinese consumers for the moment, will surely benefit from this.

In response to this “lack of presence,” Jimmy Choo said, in the same report, that it plans to open around 10 new stores per year, globally, but that this store-opening program is weighted towards China.

Michael Kors, on the other hand, has 79 specialty stores in Chinese cities, based on the information available on the brand’s official Chinese website. Under its recent “Runway 2020” restructuring program, which aims to improve the profitability of the firm, Kors has planned to close up to 125 stores in the next two years around the world. However, to catch up with the strong local demand, it will add at least 100 more stores in the Chinese market during the same period.

Solca said he believes the plan is “to finance the expansion with cash flow generated by the Michael Kors business and piggyback on the excess Michael Kors stores.”

But apart from aiding Jimmy Choo with e-commerce and brick-and-mortar stores, Kors may have another effect on the company whose benefits are debatable. Reiterating some concerns that have been voiced on social media, Solca also said he thinks the idea is to make Jimmy Choo “more accessible.” For a brand that rose to fame by being a shoe of choice for Sex and the City’s fashionable protagonist Carrie Bradshaw, its high-end status was always part of its allure. So, it’s unclear what kind of effect heightened accessibility will have on its business.

Jimmy Choo was officially put up for sale in April of this year by its previous owner JAB Holding Group, which owned a 67.6-percent stake in the company. Apart from Michael Kors, media coverage noted interest from a number of potential bidders from different geographies and backgrounds, which included Chinese buyers such as the private equity firm Hony Capital and the sovereign Qatari investment fund, which owns luxury labels such as Anya Hindmarch, Valentino and Balmain.

Among all competitive bidders, Michael Kors snapped up the deal to buy Jimmy Choo with a cash offer. Adding the luxury footwear label to the portfolio could expand the product offerings of Michael Kors amid a time when its core handbag business is faltering, and adjust its current business structure. The company also said that the acquisition would help the brand reduce its American exposure to 66 percent from 70 percent.