Michael Kors should tread carefully with Jimmy Choo

Both Michael Kors and Jimmy Choo can extract significant benefits from the acquisition announced this week, says Pascal Martin, partner with OC&C Strategy Consultants.

But he warns there “are limits” to how much and how fast a luxury brand can expand its network before starting to dilute its equity.

“Michael Kors has been enjoying very rapid expansion and could be feeling that it has reached saturation in certain markets – for example, 300+ stores in the US, 50+ in Japan and 50+ in China.

“Louis Vuitton and Coach have run into this problem where they really pushed growth but realised they had to slow down and even shut down a few stores to regain some level of “scarcity”.

“Burberry is another brand which flirted with that risk, particularly in China and Hong Kong, before it also took some measures to prune its network. When this happens, and if the brand is cash-rich, the best way to continue to grow is to buy another brand that is still relatively under-distributed and has room to grow without the risk of brand erosion – this is probably how Michael Kors sees the Jimmy Choo opportunity. Likewise, we could potentially see Burberry adopt a similar strategy under the leadership of its new CEO Marco Gobbetti,” says Martin.

“Being acquired by Kors is a great opportunity for Choo to benefit from Kors’ global reach and experience to help accelerate its growth. There is good complementarity between the two brands, in terms of target customers: more premium for Choo; geographies – Asia and US are more developed for Kors, but Europe stronger for Choo; and product range – Kors isn’t really strong in shoes.”

Martin says that looking forward, Kors will need to keep an eye on Choo’s positioning within the premium shoe market, as it is more selective than Kors’ positioning within luxury.

“Kors is more like Coach or Tory Burch on the access luxury side of the market. Choo is closer to a Christian Louboutin – very high-end and expensive, with a significant custom-made offering.”

Martin says there is a risk that expanding Choo’s distribution too fast – as Kors has done with its own brand – may create operational issues relating to quality and logistics, and brand damage.

Furthermore, stock management in shoes comes with added complexity due to multi-sizing, and possibly multi-shapes – for example to cater to Asian customers.

“Shoe retail channels are more complex than for accessories. There is actually a lot of value from a customer’s standpoint in being able to try shoes in an multi-brand environment. Therefore, the Choo distribution expansion will be different in nature to that of Kors, with much more reliance on department stores than on stand-alone branded stores,” Martin concludes.

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