Michael Kors might be the star brand in Tapestry Inc.’s $8.5 billion deal to buy Capri Holdings — but its light has clearly dimmed.
While Tapestry, which already owns Coach and Kate Spade, is waiting to put its turnaround skills to work at Michael Kors, a hearing over whether the mega deal will be allowed to go through at all highlighted just how much work there is to do.
The Federal Trade Commission, which sued to stop the buyout on anticompetitive grounds, called Michael Kors’ chief executive officer Cedric Wilmotte to the stand on Thursday and his testimony ultimately elicited an unusually raw take on the brand.
Wilmotte, who was questioned by both the FTC and counsel for the defense, said Michael Kors’ turnaround efforts so far have fallen short, that big parts of the brand’s reinvention plan are on hold and that Tapestry is better suited than Capri to complete the job.
The state of Michael Kors was already addressed in the hearing, with Capri CEO John Idol saying the brand was getting “squeezed from the top and from the bottom” in a competitive market. Separately, Tapestry CEO Joanne Crevoiserat, when asked if the brand was strong, diplomatically settled on, “The brand is iconic, execution has been — an opportunity, I would say.”
Wilmotte, in testimony on the stand and in unguarded thoughts revealed in private emails that the case brought to light, went farther.
“When I joined, clearly the brand was very challenged,” said Wilmotte, who became CEO of Michael Kors in April 2023.
Cedric Wilmotte
Courtesy
The month he moved into the corner office, Jefferies downgraded its rating on Capri stock to hold from buy and Wilmotte, in an email to his wife that was shown in court, said what he predicted had just happened and offered an unfiltered take on the business.
“U.S. is a disaster and this is all because of JI trying to maintain top line with discounting all day long versus refocusing on creating brand heat,” Wilmotte wrote, with “JI” seemingly referring to John Idol.
A Capri spokesperson did not reply to a WWD request for comment Thursday afternoon after the court went into closed session.
An internal analysis of Michael Kors’ weaknesses that were displayed in court showed the business suffered from:
- brand fatigue;
- dilution due to promotions;
- an aging store fleet;
- underpenetration in men’s;
- a lack of clarity between the Michael Kors Collection and Michael Michael Kors, and
- risk of employee fatigue.
Threats to the business included entrenched competition, pressure from brands both above and below it on the price scale, the resale channel and more.
Michael Kors strategy documents shown in court showed that the brand had both a low exclusivity factor and low prices, territory that also included the likes of Tommy Hilfiger, Kate Spade, DKNY and others.
The idea was to ultimately position Michael Kors as more exclusive and higher priced, with what Wilmotte described as a “pit stop” first in territory that is more exclusive, but still lower priced. Earlier in the hearing, it was revealed that the average out the door price of a Michael Kors handbag was $92 last year.
To reinvigorate the business, Wilmotte settled on a multipronged plan that would have Michael Kors elevate design, rebrand Michael Michael Kors to create a more singular brand voice, remodel stores, expand clienteling and rightsize distribution to “address ubiquity.”
That meant closing some Michael Kors stores and pulling out of some Macy’s doors while expanding with Nordstrom.
But competition was fierce with the CEO early in his tenure requesting examples of how Coach and Kate Spade were cutting price in a race to the bottom.
“I want the board to see what we are up against,” Wilmotte wrote in an email to a colleague. “This is to give them some more colors so they can see it with their own eyes.”
The going has been slow and Michael Kors’ revenues last fiscal year fell 9.2 percent to $3.5 billion from $3.9 billion.
“In terms of execution, I’m not pleased,” Wilmotte acknowledged on the stand. “We’re actually stalling in many of the initiatives that we wanted to push forward.”
An ambitious plan to renovate stores was cut back to only necessary locations, the marketing budget was reduced “drastically” for the remainder of this year due to budget considerations and Michael Michael Kors won’t be rebranded until fall next year, instead of spring.
“No, it is not on track anymore,” Wilmotte said of the plan. “I believe Tapestry is better equipped to take us through the transition.”
Specifically, he pointed to the Tapestry’s consumer data operations — an area that Crevoiserat sees as a key differentiator and one of capabilities that she has said would help Michael Kors.
“They are light years away from where we are today,” Wilmotte said.
Michael Kors, the designer, will get a chance to have his own say on the business as he is expected to testify next week.
Whether the brand ever gets the Tapestry treatment might well be determined by the hearing, which will decide whether or not the deal will be paused by a preliminary injunction.
This portion of the hearing will run through Tuesday with closing arguments set for Sept. 30.
