Bain estimated sales declines in China by 20-22%. This turned into drag after a long-standing boom before fueling the wealthy and growing middle class. “Except for the pandemic, this is the first time the individual luxury industry has declined since the 2008-09 crisis,” Bain partner Federica Levat told Reuters.
The Prada group, which has defied luxury sector slides by recording double-digit growth for the fourth consecutive year, is said to be in talks to win another global luxury brand, Versace, which is declining. Prada is looking at the potential acquisition of rival Versace brands, which US group Capri Holding, which has been owned since 2018 by Michael Kors and Jimmy Chew. Prada has also been reported to be interested in purchasing Jimmy Chew.
“I think it’s on everyone’s table,” Miuccia Prada said after recently unveiling Prada’s fall/winter collection. Speculation swirled around the Versace bid, Prada CEO Andrea Guerra flew to New York. It is based there by Versace’s owner Capri Holdings.
Prada’s Versace acquisition is Italy’s answer to French conglomerates such as LVMH, which dominates luxury businesses.
Why is Versace on sale?
Versace, an Italian fashion stubborn man, faces economic challenges as revenue declines. The current owner, Capri Holdings, was founded in 1978 and has struggled to reposition Italian fashion stubborns who have been building Donatera Versace’s creative direction for over 20 years.
Versace reported a 15% decline in revenue in the third quarter, which ended December 28th, increasing operating losses to $21 million from $14 million the previous year. Capri Holdings expects Versace’s revenue to decline to $810 million in fiscal year 2025, according to its long-term financial goals, and it expects its operating profit margin to fall in the following fiscal year.
Industry sources say brand performance and bleak outlook for sectors can make price-setting difficult and complicated negotiations require investment in the transition. Capri Holdings, formerly known as Michael Kors, bought Versace in 2018 for 1.83 billion euros, including debt.
Donatella Versace, who has quit as Chief Creative Officer, has been the driving force behind the brand since being shot in Miami in 1997. Donatera resigns almost 30 years later as the leading designer of the Versace brand. Dario Vitale, the design and image director for Miu Miu, a small brand within the Prada group, will play Donatera’s role as Chief Creative Officer effective April 1st.
“Versace is struggling, so it’s not surprising that there’s a change going on,” said David Swartz, analyst at Morningstar. “The brand has lost its relevance and is behind similar European luxury brands. I don’t know if bringing in Dario Vitale has a direct connection to potential sales to Prada, but that seems even more likely,” he added.
Why is Prada paying attention to Versace?
Italian media reports that the sale will value Versace at 1.5 billion euros ($1.6 billion), a $2 billion discount paid by Capri Holding.
Prada last completed the acquisition of other brands in the late 1990s and has since focused on internal growth, striking to expectations that it aims to create a larger Italian fashion hub. With Versace’s acquisition, Prada can target another group of customers, with a taste that is far from Prada’s trademark minimalism.
Ortelli & Co., a high-class advisory company. He said acquiring a well-known brand like Versace will accelerate growth, according to Mario Ortelli, managing partner.
However, Hong Kong listed groups must also address a challenging shift in the Medusa-Logo brand, according to industry sources.
According to Luka Solca, a luxury analyst at Bernstein, Prada “may be making Versace cheaper,” and Versace is a well-known name that complements Prada’s existing brand. However, he added that success in acquisition is impeded. “Versace’s revival requires a lot of money, capabilities, management attention and short-term sacrifices,” Solka said.
“The (Versace) brand needs a restructuring and has a history of mismanagement without any simple corrections,” said Melania Grippo, an analyst at BNP Paribus, in a memo.
“Prada’s interest in Versace can probably stem from a desire not to repeat business from a fashion perspective, because it involves brands with very different profiles. It may take years to turn Versace around, Tibaldi said. “There’s a lot to rebuild,” she said. For example, not all are called luxury goods, citing the wide range of Versace discounts and products. “If you can get this type of asset at an attractive price, the possibilities are very important.”
Listed in Hong Kong, but managed by designer Miuccia Prada and husband Patrizio Bertelli, Prada has the right skills to address the shortcomings of Versace in manufacturing, marketing strategies and operating directly owned shops. There is also the leather product skills needed to develop that part of the business, but this never left. “Versace has not expressed all the possibilities under Capri’s management. Prada is entitled to renewal,” Orteri said.
(Includes input from the agent)
