What's going on?

Michael Kors, the American luxury handbag maker, agreed to buy the iconic British shoemaker Jimmy Choo on Tuesday for just over $1 billion! (tweet this)

What does this mean?

For Michael Kors, the deal marks an opportunity to acquire one of the world�s most well-known luxury brands and to create a foothold for itself in the luxury shoe market. Also, its chief rival, Coach Inc., has recently bought Kate Spade in an effort to boost its growth and bought a smaller luxury shoemaker in 2015 � likely spurring Kors to pursue a similar strategy.


Jimmy Choo�s sale has been prompted by its majority owner, family-held JAB Holdings, which is selling in order to focus on its restaurants and coffee holdings, like Krispy Kreme and Panera Bread.

Why should I care?

For markets: Jimmy Choo�s investors reap the benefits while Michael Kors� shareholders appear nervous.

The price for Jimmy Choo is almost 40% above the price at which the stock was when the company announced back in April that it would sell itself. Meanwhile, Michael Kors� stock initially declined as much as 4% on Tuesday, perhaps reflecting fears that it may be paying too much for Jimmy Choo (although it did rebound later in the day).


The bigger picture: Luxury is usually a long-term game � a notion that Michael Kors apparently eschews.

Michael Kors’ strategy has been to ramp up its sales by opening up lots of new stores and selling its products at discounted prices via department stores. That worked for a few years, while it was able to essentially monetize the value of its brand � but eventually people stop viewing ubiquitous, discounted goods as �luxury items�. Michael Kors� sales have since started to fall, along with its stock price. Nevertheless, it appears as though it�s going to try the same strategy with Jimmy Choo and possibly other luxury brands (it said on Tuesday that it wants to acquire more like it).