Capri CEO Says Strategy to Revive Versace, Kors Backfired on Brands
(Wall Street Journal) -- Fashion executive John Idol owned up to some big mistakes Wednesday: In trying to revive sales for Michael Kors and Versace, his company tanked them instead.
Steep price increases and other missteps led to a nearly 12% decline in quarterly revenue during the important holiday period.
Capri Holdings, the fashion conglomerate Idol created, wrote down the value of the Versace and Jimmy Choo businesses by $600 million.
Capri shares were down 10% Wednesday. The stock is off 43% since Capri paid $2.12 billion to take over Versace in December 2018.
"We made a number of missteps in our efforts to reposition our brands, in particular at Versace and Michael Kors, that negatively impacted our results," said Idol, Capri's chief executive.
The company's brands have been in free fall for years. The pressure to turn them around has intensified since Capri's proposed $8.5 billion merger with rival Tapestry was blocked by the Federal Trade Commission last year.
Beginning in the fall of 2023, Capri tried to elevate the Versace brand by emphasizing more sophisticated pieces and the craftsmanship that went into making them -- a play on the quiet-luxury trend that was gaining steam.
While the move played well with Versace's top spenders, it turned off a broader set of customers. Idol said Versace removed too many statement items and cut back on lower-priced goods that appealed to more-aspirational consumers. Versace revenue sank 15% in the period that ended Dec. 28.
Versace now intends to try for a better balance between "fun and elegant," Idol said. It also will introduce less expensive goods to appeal to a broader audience.
Versace recently introduced a sneaker called the Galaxia that sells for $550, less than half the price of some other models.
Idol said the Versace brand still resonates with shoppers, and that its eyewear and fragrance businesses continue to perform well.
Kors tried to appeal to younger shoppers by adding too many fashion pieces, which turned off its core customers. It also raised prices too much over the past 24 months, Idol said. As consumers became pickier about what they were buying, Kors had to discount more. Now, the brand is resetting its prices: Clothing prices will come down 30% to 40% starting in the spring.
Idol tamped down expectations that Capri is actively looking to sell Versace and Jimmy Choo, but didn't rule out the possibility altogether. Some industry watchers have wondered whether Capri would try to sell the brands so it could focus on reviving Kors.
"We're always going to listen to interested parties," Idol said, adding that his current strategy is to rebuild these brands.
Capri's management needs to "stop treading water and start fixing the issues so that they can get back into growth," said Neil Saunders, who tracks the retail industry as managing director of research firm GlobalData.
Saunders said the softness in the luxury market doesn't explain Capri's chronic underperformance, given that the company's results have been worse than many competitors.
"It signifies that the brands are losing traction with many shoppers," he said.