What’s Really Going On at Capri

Retail executive Joshua Schulman seemed like an ideal candidate to lead Capri Holdings, a new-era fashion group comprised of Michael Kors, Versace and Jimmy Choo.

His experience running Bergdorf Goodman, as well as Kors competitor Coach and, in a previous incarnation, Jimmy Choo, made him an obvious successor to John Idol, who amassed a fortune building Michael Kors. In recent years, Idol had acquired Versace and Jimmy Choo in an effort to create a US conglomerate that could compete against the likes of LVMH and Kering and was ready to take a step back from the day-to-day management of the company.

On Monday, however, Capri announced that Idol wasn’t going anywhere, and that Schulman, previously set to replace him as chief executive of the group in September, was out. Michael Kors, where Schulman began as CEO in August 2021, will no longer have a top executive, and instead be run by a group that reports directly into Idol, similar to when Idol was the CEO of both Kors and its parent company.

Schulman’s generous exit package — which includes a $1.3 million annual salary for the next two years, plus an additional $5.2 million — suggests his departure is not related to a disciplinary action, according to an analysis by J.P. Morgan’s Matthew Boss. Capri also cut down his non-compete agreement from two years to six months, so he can start working for a competitor as early as September.

So, why did Capri let go of Schulman?

When Schulman was first hired from Coach in 2020 — he had to wait out a non-compete that was more than a year long — Michael Kors, Capri’s largest business, was struggling. Idol’s plan was to move it away from Macy’s-like department stores and off-price players and further into the luxury realm, where margins are higher and discounting is less rampant. He bought Versace and Jimmy Choo, two luxury businesses, to further cement his commitment.

“We felt that the luxury market will have the longest sustained growth over the next 20 to 30 years,” Idol told BoF in 2019. “We were fortunate to be able to acquire two companies so quickly, and that they were founder-led.”

Schulman made sense as the executive to implement this change, given his range of experience in luxury. However, his unexpected exit didn’t entirely shake investor confidence. Capri’s stock was down 15 percent after the news, but it appeared to be a part of a broader selloff, as PVH, Tapestry and other competitors were also down sharply.

“Mr Schulman was an important part of our investment thesis on [Capri] given his deep experience in luxury and at the Coach brand,” Cowen analyst Oliver Chen wrote in a note regarding the departure. “However, we believe the existing management is agile, seasoned and has a solid playbook to continue the momentum in the MK business. Unfortunately, the succession plan did not work out as planned.”

Idol, known for his exacting leadership style, is credited with building the Michael Kors business into the juggernaut it is today, and is only in his early 60s, still young in CEO terms. By the time Schulman joined the business in 2021, Michael Kors was already back on track, with increasing margins pointing toward a move upmarket. In the first quarter of its most recent fiscal year, operating margin was 27.6 percent at Kors, up from -15.6 percent a year earlier and 20.5 percent pre-pandemic.

Perhaps Idol, after righting the ship to a certain extent, wanted to see his project through — and the board agreed, hence the generous package for Schulman, who was expecting to lead the entire Capri business, not just Kors. A representative for Capri declined to comment beyond the public statements. Schulman did not respond to a request for comment.

Regardless of why Schulman left, the change puts pressure on Idol to increase sales, as well as margins, at each of the company’s brands, while continuing to reposition Kors. Both Versace and Jimmy Choo are growing rapidly, but remain relatively small compared to many competitors. Versace is set to hit around $1 billion in sales this year, while Jimmy Choo will likely meet, if not surpass, its pre-pandemic sales figures of close to $600 million.

Idol will need the momentum of Versace and Jimmy Choo, which currently have much lower operating margins than Kors but stronger positioning, to continue moving Kors into the luxury space, which could cause its sales to shrink for a period. Other brands have made that move upmarket — Gucci did it in the 1990s, for instance.

But rather than pure luxury, Idol’s expertise is in a selling architecture used by American brands like Ralph Lauren, Tommy Hilfiger and Calvin Klein, which rely heavily on lower-priced lines to drive revenue. (Donna Karan International, where Idol was CEO in its late-90s heyday, also leaned on DKNY.) He now has experience in luxury, thanks to Jimmy Choo and Versace, but it will still be challenging to get Kors to the level where consumers rate its bags the way they do a Balenciaga or Louis Vuitton.

“Going upmarket can be a daunting and risky move — for a public company, it certainly takes full buy-in and a commitment to experiencing a major reduction in revenue for a time period,” said retail consultant Robert Burke. “Today is a more competitive climate than it’s ever been. Luxury brands firmly established have gone high luxury. Having the vision to plan for the future, rather than the present, is key.”

What will Idol need to do to get there? According to Chen, key priorities should include updates to Michael Kors’ logo-ed product, but also a sharper marketing strategy and, he said, a plan to “intensify collaborations and partnerships.” A vague idea, but what it essentially means is that Kors needs to increase its consumer relevance. And that’s Idol’s job, once again.