Women’s Wear Daily
04.21.2014
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LVMH Makes a Deal: Stroll, Chou Buy 85% Stake in Michael Kors

NEW YORK — Silas Chou and Lawrence Stroll added a second luxury brand to their holdings, having struck a deal to acquire a controlling stake of...

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NEW YORK — Silas Chou and Lawrence Stroll added a second luxury brand to their holdings, having struck a deal to acquire a controlling stake of Michael Kors LLC from three of its minority partners.

Chou and Stroll, through their company, Sportswear Holdings Limited, concluded separate deals to acquire what sources placed at 85 percent of the company. That includes the one-third stake in Kors’ business held by LVMH Moët Hennessy Louis Vuitton, the 10 percent that Onward Kashiyama USA bought in 2000 and the remainder owned by John Orchulli, the designer’s long-term business partner who will remain with the firm as chief executive officer for a short-term interim.

The complex deal, struck late Tuesday night, comes less than a week since LVMH chief financial officer Patrick Houel said that the conglomerate would continue to shed some of its businesses, specifically citing cases where LVMH owns shares in companies, following its divestitures of upstart beauty companies Hard Candy and Urban Decay and a 27.5 percent stake in Phillips, de Pury & Luxemborg, the auction house. Kors, who has had a relationship with LVMH as the designer of its Celine collection since 1997, sold the one-third stake to LVMH in 1999.

The sudden arrival of Chou and Stroll, who already own the British luxury brands Asprey & Garrard and recently made an unsuccessful run for Calvin Klein Inc., struck some analysts and retailers as indicative of a strain in the relationship between the designer and the French conglomerate, rumors of which have occasionally surfaced. But Kors, Chou and Stroll said in a joint interview on Wednesday that was not the case. Kors said that he coincidentally had extended his contract to act as creative director for Celine for another year, through March 2004. (A detail not lost on the participants was that the interview was held in the Christian Dior suite of the St. Regis, 18 stories above the Louis Vuitton flagship on Fifth Avenue.)

While terms of the deal were not released, Wall Street sources said Stroll and Chau paid a total amount roughly equivalent of the global volume of all Kors products, or slightly less than $100 million. Some analysts said some of Kors’ partners were interested in such a deal as a reaction to the intense pressure facing all the luxury conglomerates over the past few years.
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Dana Telsey, retail analyst at Bear, Stearns, said she expects the luxury market to continue to face such pressures over the next year. "I think that LVMH will continue to reevaluate which brands they want to keep [under their umbrella]. It basically will be a cost-benefit analysis for them," she said.

It was Kors, himself, who initiated the contact with Chou and Stroll and then approached his investing partners over the past month with a deal, pitching what he described as a rare opportunity to create an influx of cash to finance future growth of the company and, at the same time, appeal to the varying interests of Orchulli, LVMH and Onward Kashiyama, the licensee for the Kors Michael Kors bridge collection worldwide and the company’s distributor for Japan.

"I hadn’t really been looking to sell the company," Kors said. "The whole thing just happened at the right time. The fact of the matter is that LVMH has been a minority shareholder in my business and was not involved in the day-to-day operations. They didn’t call me up and say, ‘Find someone.’"

Kors and Chou have known one another for more than two decades, since the designer was working with Lyle & Scott, the cashmere knit company, and they met when Chou went to Scotland to look at buying the company, which obviously left a lasting impression on Kors. Chou and Stoll, meanwhile have been hot for another luxury acquisition since buying the formerly combined Asprey & Garrard, having been involved in recent bidding for brands including Valentino, Brooks Brothers and Calvin Klein. Since winding down their involvement in Tommy Hilfiger, what appealed to the duo about Kors was the potential to develop a relatively untapped American brand — currently a $100 million business focused largely on the luxury market — into a much bigger business.

"We regard Michael as a luxury American designer and besides being tremendously talented, he’s young," Chou said, describing the 43-year-old Kors. "This is a great opportunity to team up with him and make him the next great American designer. Michael is unique; not only does he have talent, but good sense also. He’s very balanced between the left brain and the right brain."
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Kors expressed a similar respect for his new employers’ attitude toward business and the creative process. "These are businessmen," he said, "but they also have impeccable taste."

While Kors’ reputation as a designer and his creative talents are undeniable, his success in business has not been so clearly defined since he and Orchulli opened the signature collection in 1981. He has enjoyed the support of editors and retailers throughout his career, partly because of his ability to deliver collections comprised of pure vision of luxury American sportswear elements while at the same time renovating the once dusty Celine label in Paris, and partly because of his ability to entertain them with a lively sense of humor.

There have at times also been complaints of a sense of sameness in his collections and occasional reports of difficult sales at retail, a not-so-surprising reaction to a designer who deals in a vocabulary of modern and ever-more-luxurious takes on the classics: camel cashmere coats, navy blazers and herringbone slacks. The situation has largely improved in recent years, with his expansion into licensed signature and Kors fragrances; the relaunch of a luxury men’s wear collection, and the opening of his collection store on Madison Avenue in 2000 and a Kors store in SoHo.

"He is of major importance to our business," said Sue Patneaude, vice president of designer apparel for Nordstrom. "His collection is one of the best-performing we carry. We believe that Michael has the ability to sustain the business and that he has the talent and determination to succeed on his own merit. He has proven that over time and we could not be more supportive."

Similarly, Ed Burstell, vice president and general manager at Henri Bendel, said both the Michael Kors and the Kors bridge collections "have always performed very well here," and Jeffrey Kalinsky, owner of the Jeffrey stores in New York and Atlanta, said the signature label and Celine have both had strong sales.

The designer has also managed to create an image that appeals to a wide range of society customers, re-creating a front-row each season that draws both the old-school clients of Bill Blass and Oscar de la Renta and the newer guard more typically catered to by Tuleh.
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"I would describe Michael’s style as modern traditionalism," Stroll said. "We feel that his taste level could have a much broader appeal that could eventually filter down to a broader audience. It’s much more difficult to do that with a contemporary designer. Michael Kors has shown itself to be, to date, a luxury brand, as are Asprey & Garrard.

"Michael clearly represents American luxury and we felt that complemented our entry into the luxury goods sector two years ago," he said. "One of the reasons Michael’s business isn’t bigger today is that it has not had a big insurgence of cash or aggressive management behind it. We intend to bring both."

Kors’ company has undergone several changes in backers since its inception, as well as one bankruptcy. In 1993, the designer was forced into Chapter 11 after a deal he signed three years earlier with Italian manufacturing group Compagnia Internazionale Abbligliamento for his bridge line fell apart, leaving Kors to deal with massive debts at a time when his top clients, luxury specialty stores like Martha and The Gazebo, were closing shop. Kors and Orchulli were able to reorganize the company by 1994 and then relaunched the bridge collection in 1996 with the beginning of its relationship with Onward Kashiyama, creating an immediate hit that helped usher in a wave of collections mirroring the designer mentality in the bridge category.

Despite a healthier-looking company since the infusion of capital from LVMH, occasional cracks still appear on the surface of the company. There have been some reports of too much similarity between the bridge and designer collections, and last year, when executive changes were taking place throughout the company’s entire sales team, Kors’ mother stepped in to direct a series of trunk shows.

"I won’t say business is glowing," Kors said of the company’s current fiscal state. "We are profitable. The business in our store on Madison Avenue continues to be strong and the business in Tokyo is great, but the climate out there is not great. That makes you work harder. The most important thing in fashion if you want to be around a long time is to learn to be flexible."
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Kors also credited LVMH and his position at Celine for helping establish his reputation and for bringing his designs to the attention of European customers, but he was less committal when speaking of the long-term prospects of his future relationship with the house. The year-long extension of his contractual duties is a somewhat unusual announcement for an LVMH designer, considering past deals typically have been for a longer time frame, although it could again be renewed. Marc Jacobs, for instance, signed a seven-year contract to continue at Louis Vuitton last year.

"I am willing to say that I have no idea what the next year will bring," Kors said. "I felt that to be able to give Michael Kors the time it needs, while making such a commitment to Celine, that it might not work. I need to be able to give this my all, since it’s a new venture for me."

Jean-Marc Loubier, president of Celine, said that under Kors’ creative direction, the house has built up its ready-to-wear first, but has recently put a bigger focus on the bags, shoes and accessories.

"We have created a core recognition in design and a commercial range of products in leather goods and shoes that we didn’t have before," he said, noting that sales of leather goods doubled in America in 2002. Kors said the deal will not affect his plans to show his signature fall collection in New York on Feb. 12 or his next Celine show on March 7 in Paris.
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