Capri Holdings Hits Speed Bumps On The Road To $8 Billion In Global Revenue

Originally published in Forbes by Pamela N. Danzinger

It’s early days in Capri Holdings’ climb to reach its stated goal of $8 billion in global revenues. With three powerful brands under its umbrella–Michael Kors (founded 1981), Jimmy Choo (1996 and acquired November 2017) and Versace (1978 and acquired September 2018)–and each led by visionary founders, Capri Holdings just announced first quarter 2020 revenues rose 11.9% to reach $1.35 billion, but missed its goal by $26.4 million.

Positioning 2020 as an “investment year,” CEO John D. Idol remains confident in taking the company from an expected $5.8 billion this year to $8 billion “over time,” though he also downgraded previous estimates from $6 billion.

“We are investing in Versace and Jimmy Choo to position these preeminent luxury houses for long term revenue growth and margin expansion. We are also executing on our strategic initiatives at Michael Kors to return the brand to growth,” Idol said in a statement.

While topline 11.9% growth looked good, it was all thanks to the Versace acquisition, which added $207 million to the balance sheet in this its second-reporting quarter. Jimmy Choo revenues ($158 million) declined 8.7% in the first quarter and Michael Kors ($981 million) were down 4.8%. 

Last year in the fiscal year ending March 2018, it was pretty much the same story. The reported 5% revenue growth for the then Michael Kors Holdings Limited all came thanks to the addition of Jimmy Choo’s $222.6 million revenues, while the Michael Kors brand was flat at $4,496 million.

One would expect that after a year, Jimmy Choo would have more to show this quarter than such a big decline. In defense, it was caught unawares by the appeal of its new “active footwear,” a.k.a. sneaker, offerings, but then it also shows that its core glamour shoe silhouettes are not pulling like they used to. And looking to next quarter (2Q20), Jimmy Choo revenues are expected to reach only $125 million.

Fiscal year 2019 was a bumpy one for the Jimmy Choo brand. Its standout quarters were the first ($172.7 million) and third ($161.6 million), while fourth quarter 2019 delivered $139 million and second quarter dragged at $116.7 million to end fiscal 2019 with $590 million in global revenues. Long term the goal for Jimmy Choo is to reach $1 billion in revenues globally.

Michael Kors is facing a tough slog in its turnaround efforts to elevate the profile of the brand to true luxury status. Its “accessible” luxury offerings are losing traction in the critical Americas market, which contributed 67% of global revenues. Michael Kors sales in the Americas declined 5.3% in the quarter. Reduced department store wholesale orders are largely blamed, though weakness in that sector overall is not helping the brand either.

To elevate the brand, the company is focused on its signature collection, a new loyalty program which aims to grow from 1 million to 2 million brand loyalists by year end, and a new emphasis on clienteling to serve its VIP guests. The aim is to grow the Michael Kors brand to $5 billion from its current $4.5 billion level.

To reach $8 billion Capri Holdings is counting largely on growth in Versace. Its aim is to grow the brand from around $900 million to $2 billion. Looking at its long term plans for the Versace brand, that is a goal that appears achievable.

Versace has proven credentials as a true luxury brand. The goal to increase its retail footprint from 200 to 300 stores globally is realistic and its plans to grow men’s and women’s accessories from 35% to 60% of revenue is right on point. Enhancements to Versace’s global e-commerce platforms will also give it a boost.

To help analyze the opportunities and the challenges for Capri Holdings and its three luxury brands, I reached out to Travis York, president and CEO of marketing agency GYK Antler, named one of America’s top 25 small companies by Forbes in 2017, and who’s worked with fashion and apparel brands throughout his 20 year career in advertising and marketing.

Patience will be rewarded

York sees the founders-in-chief at each of Capri’s brands as the creative spark to keep the brands moving forward. “Founder-led brands are powered by the personality and talent of the individuals, and in this case, they are formidable,” he shares. “Today a lot of brands are fabricated and corporate driven. Michael Kors, Jimmy Choo and Versace have a genuine story.”

He feels this quarter’s weak performance is to be expected, rather than something to be alarmed about. “These are big brands with a broad range of products offerings, so it is a ‘big ship’ to turn. And as is always the case in fashion, sometimes your designs are hot, and at other times cooler. As a family of brands, they have lots going for them and more control than a lot of other brands. I have a lot of confidence they will pull through,” he continues.

On the plus side, York sees the company will benefit from economies of scale in operations and the potential of more strategic collaborations, not necessarily in product offerings, but through cross pollination of strategies and management know-how.

“I see them using the resources and the wide range of things they have through their size, caliber of people and established infrastructure that sets they up better than many other companies,” York says. “But it takes time to get all the pieces moving in sync.”

Jimmy Choo ambitions vs. reality

Regarding the Jimmy Choo brand, which is intended to grow through annual mid-single digits in comp revenues from 2019 through 2022, and operating margin from mid-single digits in FY20 to mid-teens by FY22, York and I both wonder if the brand can translate its “feminine yet strong” positioning to a male audience. The launch of a new logo, expansion of its retail footprints with a more gender-inclusive layout and merchandising, and more sneakers and men’s bag offerings are its growth initiatives.

“Yes, this is a pivot that lots of gender-specific brands want to make. Only certain brands have the attributes to do this successfully (and authentically),” he shares. “Thankfully, there is a large stylish men’s audience that may not know that Michael Kors and Jimmy Choo (both fairly masculine names) have historically catered to them.”

To go deeper with its core female customer base, Jimmy Choo plans to expand into handbags and other accessories that will take the women’s accessories category from 18% of sales to 30% by FY22. In women’s shoes, as noted, it has expanded largely from dress to include more casual styles.

“Jimmy Choo is going broader than shoes, but the question is whether they are going to be on trend with that. A lot of the new styles are more ‘hipster,’ like fanny packs and sneakers, that may not align entirely with the brand,” he cautions.

And then as Jimmy Choo pivots to more women’s and men’s accessories, it may be treading on Michael Kors’ toes.

Michael Kors must swim upstream

For Michael Kors, York sees balancing distribution in department stores, off-price and discount channels with its own premium boutiques as one of its biggest challenges. 

“It created a lot of offshoot brands that were lower priced and cheapened the brand in a lot of ways. They are trying to go back upstream with the primary lines, but it is going to take time to weed out those lower-end products and get the consumer thinking higher-end again,” he says.

As for concerns that Oliver Chen of Cowen expressed in his latest earnings update, specifically that the resale luxury market is pressuring first-time sales, especially for the Michael Kors brand, York sees this as aiding the luxury brand positioning long term, even while it takes sales away in the short term. “It can be a credibility booster when you are hot in the resale market,” he believes.

The challenge for brands like Michael Kors, Jimmy Choo and Versace is how to develop products that attract that first customer, then have enough cache to follow them into the secondary market.

“For a lot of these high fashion brands in the face of these companies that rent, resell and trade products, how they embrace those trends, as opposed to fight them, is either going to set them up for success or failure,” York warns.

Economic turmoil threatens all

And then global economic turmoil presents the greatest unknowns facing Capri Holdings and every other global luxury brand. Soon there will be the no-deal Brexit, which will likely have less impact on Capri. Posing a far greater threat to Capri brands is uncertainties in China, with the threat of a trade war, the recent currency devaluation and the Hong Kong uprising. All three brands have a lot riding on Asia, most especially Michael Kors, which aims to grow from 13% of sales in FY19 to 20% by FY22.

“It’s a danger for everybody and what is most dangerous is its unpredictability. It’s impossible to know what direction things are going to go since it is changing daily. The good news is everyone’s in the same boat and the bad news is that everyone’s in the same boat too,” he quips. 

In the final analysis, York and I agree that Versace has tailwinds that will take it to the next level, while Jimmy Choo and Michael Kors face more challenges. But the three brands together under the business guidance of John D. Idol and the creative vision and energy of Michael Kors, Sandra Choi (Jimmy Choo) and Donatella Versace, Capri Holdings has a great opportunity to build into a global luxury leader.

“People want stories. They want people behind the brands. They want quality craft. They want to be able to buy things through different channels. I think these brands have a lot going for them. It’s now a process of adapting their business models to capitalize on the trends in the global market,” York concludes.

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