Michael Kors Holdings Ltd. (NYSE: KORS) announced on Tuesday that it has made a deal to purchase well known shoemaker, Jimmy Choo for $1.2 billion.
The purchase of Jimmy Choo will give Michael Kors a new potential growth in the luxury shoe market as the company has been seeing a sales decline in the past year.
"This will not be [Michael Kors'] last acquisition," John Idol, CEO of Michael Kors, told CNBC in a phone interview shortly after the deal was announced.
Idol emphasized Michael Kors plan on forming a “luxury group” as the company laid out its “2020 plan,” a strategic move of getting its sales back up to where it once was by 2018.
Many retailers have been facing drastic sales declines in the past few years due to the competition of online shopping and even outlet stores that offer huge discounts to customers. Michael Kors has tried the same strategies as other competitors, but for the luxury high end brand, it did not pay off.
Sales for Michael Kors have taken a huge hit, declining 11% in the previous quarter, and investors have taken away a third of the stock’s value in the last year. With the recent decline, the company is in the works of closing down roughly 100 to 125 stores, but plans to renovate about another 100 stores. The company also plans to look into its discounting and sell fewer items at department stores, as they are known to mark down prices to move products faster.
"We admire the glamorous style and trend-setting nature of Jimmy Choo designs," said Michael Kors, honorary chairman and chief creative officer, in a statement.
Jimmy Choo was started in 1996 by British Vogue editor Tamara Mellon and designer Jimmy Choo. It grew to its notable popularity due to support from celebrities such as Princess Diana or Sarah Jessica Parker
Jimmy Choo put itself up for sale in April as Germany's billionaire Reimann family, the largest owner through investment vehicle JAB Holding, attempts to shift its focus away from luxury goods. It is instead creating a large food and beverage market and has since purchased brands like Krispy Kreme, Peet's Coffee & Tea's and Caribou Coffee. It recently bought Panera for $7.5 billion. Michael Kors said the deal has the support of JAB.
Jimmy Choo will continue to be run by CEO Pierre Denis, who has held the position since 2012. The company currently has more than 150 stores around the world.
This deal comes shortly after Coach announced its acquisition of Kate Spade for $2.4 billion, which the company bought in order to progress growth by purchasing a brand popular among the younger age groups.
The two companies, Michael Kors and Jimmy Choo, both appeal to different sections of the retail market. In hopes of purchasing Jimmy Choo, Michael Kors hopes to reach out to a new demographic and increase its declining sales.