WALL STREET JOURNAL | MATTHEW DALTON AND SUZANNE KAPNER
Michael Kors Holdings Ltd. KORS +0.67% is close to a deal to buy Italian fashion house Gianni Versace SpA for about €2 billion ($2.35 billion), people familiar with the matter said Monday, in a move that would put one of the glitziest names in high fashion in the hands of a budding U.S. conglomerate better known for affordable luxury.
A deal would give Michael Kors a sought-after foothold in European fashion. Although Mr. Kors, who is the chief creative director of his company, has worked in high-end fashion, his brand is now best known for handbags priced at less than $500. Versace’s handbags start at $1,500; its ready-to-wear lineup includes extravagant designs, such as a velvet dress emblazoned with a leopard, with a price tag near $2,500.
The sale would also mark one of the first attempts by an American fashion company to run an elite European brand. With its sales sputtering in recent years, Versace presents Michael Kors with a significant turnaround project. Versace’s revenue stagnated at roughly €700 million in 2017; the brand eked out a profit of €15 million last year.
“Versace has struggled with its accessories business, and Michael Kors could help them with that,” said Robert Burke, a former Bergdorf Goodman executive, who is now a consultant.
But Versace’s edginess also sits at the opposite end of the fashion spectrum from the Michael Kors aesthetic of classic American sportswear. Michael Kors investors panned the deal, sending its share price down nearly 8% Monday afternoon after news of the acquisition broke.
Versace has been tied for decades to the tumultuous history of the Versace family, whose members remain its controlling shareholders. Founded in 1978 by Gianni Versace, the label quickly became famous for his sexually charged designs, featuring colorful prints and daring cuts. He helped promote the idea of the supermodel, with Naomi Campbell becoming a muse.
In 1997, Mr. Versace was gunned down outside his Miami Beach mansion by a serial killer, who targeted him randomly. His sister, Donatella Versace, who had little formal training in fashion design, became creative director after his death.
The period after Mr. Versace’s death marked a chaotic time for the fashion house. Ms. Versace struggled with drug abuse and checked herself into a rehabilitation program in 2004, casting a cloud over the label. Ms. Versace recovered and has overseen operations at the company ever since.
It is unclear whether the Versace family would remain as minority shareholders in the business, or whether Ms. Versace would stay on as creative director, if a deal is consummated.
Other suitors, such as Tiffany & Co., were involved in negotiations to buy the company, people familiar with the talks said. But they withdrew, concerned about the €2 billion price tag and the management challenges presented by turning around Versace.
Private-equity giant Blackstone Group LP bought 20% of Versace in 2014, hoping to orchestrate an initial public offering of the business. But those plans foundered amid Versace’s problems. Blackstone is planning to sell its stake in the business as part of the deal with Michael Kors, a person familiar with the matter said. Ms. Versace, her daughter Allegra, and her brother Santo own the other 80% of the company.
In recent years, Versace has struggled to boost sales, despite a luxury-fashion boom led by Chinese consumers. The brand has been slow to invest in digital marketing and e-commerce, losing market share among younger shoppers who have become one of the luxury’s core demographics.
Versace has been overshadowed by Italian rival Gucci, which has become one of the fashion industry’s fastest-growing brands. Gucci has embraced a quirky, at times resolutely unsexy, aesthetic.
The Italian newspaper Corriere della Sera reported the deal earlier.
In seeking another distinct brand, Michael Kors is taking a page from European luxury houses such as LVMH Moët Hennessy Louis Vuitton andKering , which own labels as diverse as Christian Dior, Fendi, Gucci and Saint Laurent. In America, it is following the path of Coach, the leather-goods and accessories owner that recently renamed itself Tapestry Inc. Coach bought Stuart Weitzman in 2015 and acquired Kate Spade in 2017.
Both Kors and Coach turned to acquisitions after growth slowed at their core brands. Kors spent $1.2 billion in 2017 to buy high-end shoe brand Jimmy Choo.
Such conglomerates have striven to run the front end of the brands independently, allowing them to express their individual creative visions, while combining operations on the back-end business operations to realize economies of scale.
The designer Michael Kors got his start at Bergdorf Goodman before launching his own designer collection in 1981. While building his business, Mr. Kors also served as the creative director of French fashion house Céline from 1998 to 2004.
At one point, LVMH was a minority investor in Kors, but was bought out in 2003 by Silas Chou and Lawrence Stroll, the businessmen who turned Tommy Hilfiger into a household name. Under their direction, along with Chief Executive John Idol, Michael Kors expanded rapidly by targeting the affordable part of the luxury market, positioning itself in a similar way as Coach. Messrs. Chou and Stroll sold their stake in the company in 2014.
Both Kors and Coach have tried to appeal to shoppers who aspired to high-end goods but were on more of a budget. Kors rapidly expanded by opening its own boutiques, and it now has more than 800 stores world-wide. It had $4.7 billion in sales as of its most recent fiscal year, which ended in March. Helping the designer was a stint as a judge on the television show “Project Runway,” which vastly expanded his popularity.
Like Coach, the brand hit a roadblock in recent years, with critics calling it overexposed. It resorted to discounting to sell its goods. More recently, Kors has repositioned itself by raising the quality of its products and curtailing discounts.
—Ben Dummett contributed to this article.