If you know me, you know I like shoes. When the news came out this week that Michael Kors is buying Jimmy Choo for $1.2 billion, it caught my attention. Jimmy Choo is a prestige brand primarily focused on womens shoes. It has a cult following and many top celebrity loyalists. The shoes start at $500 and rapidly increase from there. Jimmy Choo shoes are not just a product, they are an experience.
Michael Kors is down the main with a wide product offering ranging from shoes to clothing. MK shoes start at $50. A much different market than Choo. MK sells through both retailers and company stores. Amidst declining sales, 100-125 stand alone stores are being closed. MK is also looking to sell less through retail channels that heavily discount to move inventory. In other words, revenues and earnings have been declining rapidly. The appeal of Jimmy Choo is the global reach and high end design. MK plans to expand Choo beyond shoes and leverage a higher online presence.
The reality is, most acquisitions fall short of their expectations. The investment thesis does not adequately capture what made the company successful and appealing to its customers. As changes are made with the intention of growing earnings, the point of distinction is lost and customers drift away. And so to does the value of the acquisition. Will Choo maintain its high end design sense? Will the brand get watered down? Time will tell.
In your quest for growth, how do you maintain an eye on the point of distinction of your latest acquisition? Do you really understand what makes the company successful? How are you making sure you don’t screw up what you just bought?