Capri Holdings, the parent company of Michael Kors, faces a significant challenge following the collapse of its planned $8.5 billion merger with Tapestry, the owner of Coach. With revenue for Michael Kors plummeting to $3.5 billion, a decline of 22% from 2019, the brand must adjust to navigate its way back to growth.
Capri Holdings CEO John D. Idol has outlined a strategic turnaround plan. Central to this plan is the need to align products with customer expectations by providing more desirable bag options at accessible price points. Idol remarked on a recent analyst call, “Our issue is we have pricing that is out of line for what the customer’s expectation is. They’re being much more choiceful today than they were two years ago.” This comment emphasizes a critical shift in consumer behavior; shoppers today are more discerning, seeking value while maintaining their standards for quality and style.
To regain momentum, Michael Kors will pivot towards offering more affordable monogrammed bags, shifting away from high-priced trendy items that failed to resonate with core customers. The company’s recent emphasis on premium products targeted at younger, trend-driven consumers has proven counterproductive, alienating long-standing fans of the brand. For instance, Michael Kors attempted to attract a younger demographic through collections meant to appeal to the TikTok crowd, yet these efforts did not produce the desired results.
Investors remain skeptical about whether Capri can successfully implement this shift independently, especially after a sharp decline in stock values that saw shares lose more than half their value when the merger was blocked by a federal judge. The failed merger prospect created hopes of operational synergies, particularly drawing on the success of Coach, which had executed its own turnaround several years prior and achieved remarkable results—growth in sales by 19% in recent years.
Analyzing Coach’s recent resurgence can provide a roadmap for Michael Kors. Coach has adeptly straddled the line between attracting new customers while keeping the loyalty of its traditional consumer base. The brand’s effective use of pricing strategies and product diversification to invigorate its sales should serve as a model for Michael Kors.
The path for Michael Kors is straightforward yet fraught with challenges. Idol alluded to the need for a renewed focus on wholesale opportunities, which Capri has scaled back in recent years but is crucial for reviving revenues. Specifically, Idol highlighted that there will be a reevaluation of pricing and the assortment of products across Capri’s other brands, including Jimmy Choo and Versace. Many retail analysts have echoed the significance of restoring a presence in department stores, which have been largely neglected as Capri aimed to elevate its brand.
Capri plans to invigorate the marketing strategy for Michael Kors starting spring 2025, aligning it with the rollout of revamped signature products aimed at enticing previous customers. To improve accessibility, the marketing budget will be increased and strategic price adjustments will be made, with iconic products likely retailing between $149 and $295 instead of the current $250 to $400 range for many bags.
Structural reforms will also occur, including the closure of 75 underperforming stores, leading to a streamlined network of approximately 650 locations. Concurrently, investments will be made to revamp around 150 existing stores, addressing a critical need for modernized retail spaces to engage customers effectively. As retail analyst Dana Telsey observed, “Retailers need to remodel, rejuvenate, and remerchandise on a regular basis in order to maintain their ability to have compelling products and drive conversion.”
While Versace and Jimmy Choo are significant players in the luxury market, they only account for a small share of Capri’s overall business compared to Michael Kors. Michael Kors represents about 70% of Capri’s net sales, placing immense pressure on the brand to deliver results. The volatility of the luxury sector was illustrated by a 28% sales decline reported for Versace in its last quarter, prompting the brand to broaden its product offerings and revitalize its marketing efforts in an equally competitive luxury landscape.
For Jimmy Choo, increased emphasis will be placed on casual footwear which has become a necessity as occasion-based sales have declined. Expanding this footwear category is essential to ensure it comprises a substantial portion of overall company sales.
Crucially, Capri’s successful navigation of the wholesale landscape will be essential. By recalibrating its approach and offering products that align closely with consumer demand, the brand can optimize its engagements with retailers and improve profitability across all distribution channels.
Despite the uphill battle ahead, it’s worth recognizing that brands have successfully transformed their fates without major ownership changes. Take Abercrombie & Fitch, which managed to revitalize itself after being written off by many industry observers. The historical precedent for brand revitalization remains a beacon of hope for Michael Kors as it charts its new course in a shifting luxury market.
The necessity for strategic adjustments, maintaining consumer engagement, and exploring new retail pathways could potentially ignite a revival for Michael Kors, reaffirming the brand’s position in the luxury fashion ecosystem. Everyone loves a comeback, and with determination and strategic pivots, Michael Kors might just prove this sentiment true.
