A little jet-set glamour touched down in Manhattan federal court on Monday, where Michael Kors took the stand at a hearing that will likely determine who owns the brand he founded.
Tapestry Inc. agreed to buy Michael Kors’ parent company Capri Holdings in an $8.5 billion deal last year that the Federal Trade Commission has sued to block on antitrust grounds.
The government argues that bringing Tapestry’s Coach and Kate Spade brands together with Michael Kors would create a giant controlling 58 percent of the accessible luxury handbag market that would be able to raise prices on consumers, without boosting value.
Over six days, the hearing, which will likely determine the fate of the deal, has turned on economic analysis, input from handbag competitors and many executives, including Tapestry chief executive officer Joanne Crevoiserat and Capri CEO John Idol.
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Kors, chief creative officer at the brand he founded in 1981, brought a little style to the proceedings as he went over his background and talked about his current work life.
Kors got his big break when Dawn Mello, then fashion director at Bergdorf Goodman, saw one of his designs and said her store would be a buyer if he ever made a line.
“I immediately went home and I started sketching the collection,” Kors said. “[Bergdorf] bought the product on first sight.”
It was a quick start for the 22-year-old, working out of his one bedroom apartment on 22nd Street and Seventh Avenue in New York with money borrowed from a family friend.
Kors largely stuck to apparel, but learned about handbags while he was creative director of Celine, and in 2000 introduced them into his own brand.
“I wanted to grow my business,” Kors said.
But the brand’s growth path was not a straight one.
“We overextended ourselves and we found ourselves with no choice but to file Chapter 11,” said Kors, who said he went on to “tighten my belt” and charge forward.
“It is a very cyclical business; you are going to have highs and lows,” Kors said, noting that fashion brands are subject to any number of factors, from the economy to consumer mood.
Kors, with the help of Idol as CEO, hit a long hot streak that saw the brand go public and pushed sales up to as high as $4.7 billion in 2016.
Lately, the Michael Kors business has been at something of a low, with sales down to $3.5 billion last year with the brand reinvention strategy stalled due to budgetary constraints.
Kors said he faces design competition all around.
“It can be Lululemon. It’s Zara, it’s Louis Vuitton, it’s Gucci. It’s direct-to-consumer brands that don’t have a fashion show,” Kors said.
The designer called Ralph Lauren an “American behemoth” that has sold handbags for some time but is getting more serious.
“He’s not dabbling anymore,” Kors said of Lauren. “Now, Ralph Lauren has got three different handbag collections plus what he’s producing for his outlets.”
Competition is front and center in the case, with the government arguing that the merger would hurt working and middle-class Americans who want to buy a handbag, but not break the bank.
The case has shined a spotlight on price and unearthed seemingly every internal email and text on the matter from both companies.
For instance, Kors, who has a habit of sending work messages from his husband’s email address, emailed colleagues asking for the suggested pricing of handbags from Tory Burch, Polo Ralph Lauren, Lauren Ralph Lauren, Kate Spade, Stuart Weitzman and Furla.
“This is the only way to get a clear strategy on our pricing,” said Kors, who never ended up actually getting the competitive pricing data. (The case has revealed that while Michael Kors handbags have a ticket price of near $450, the average out the door retail price was $92 last year.)
Kors also texted Cedric Wilmotte, the Michael Kors brand president, “Think we spend too much $ constantly chasing [an] outlet cut up kind of customer.”
He added the brand was “spending $ on golfer who looks old fashion and not modern sleek and definitely not jet set.”
In its case, the FTC has relied on a definition of the accessible luxury handbag market that includes only four styles: crossbody bags, satchels, shoulder bags and totes/shoppers.
Asked by Capri’s counsel if that made sense to him, Kors said, “No, there’s no logic to me. Backpacks and tote bags serve the same end use.”
When the FTC later asked about how Kors conducts his research, he said, “The street is my research. After 45 years, I have a good understanding of the consumer.”
Pressed if that was his sole basis for his understanding, Kors replied that he used his “eyes, ears and brains.”
The stakes are high for Kors, who said he expects to continue to be creative director at the brand if the deal closes and who also acknowledged that he and his husband, Lance LePere, have a combined equity stake worth $50 million in Capri.
Also appearing on the stand on Monday — but with less at stake — was Jeff Gennette, former CEO of Macy’s Inc., who was hired by Tapestry and Capri for $900 an hour to be there as an expert witness.
Gennette also said the handbag market was intensely competitive with mass merchants like Target, Amazon, off-pricers, social media players, pure-play handbag brands and resellers all going after the business.
It’s a market where Michael Kors has struggled, and the brand’s troubles have impacted Macy’s, Gennette said. “It was a bad spiral that the Macy’s brand was living through,” he said.
Michael Kors, according to Gennette, lost “its brand heat.”
When asked about the government’s argument that Tapestry could simply raise prices once it bought Capri and Michael Kors, Gennette said, “Where’s the consumer in that equation?”
He also said that Michael Kors has already tried to boost price without adding value to its offering.
“When they raised prices, they got spanked by the consumer,” Gennette said.
