Item 1. Business
Item 1. Business
Our Company
Capri Holdings Limited (“Capri”) is a global fashion luxury group, consisting of iconic brands that are industry leaders in design, style and craftsmanship, led by a world-class management team and renowned designers. Our brands cover the full spectrum of fashion luxury categories, including women’s and men’s accessories, footwear and ready-to-wear, as well as wearable technology, watches, jewelry, eyewear and a full line of fragrance products. Our goal is to continue to extend the global reach of our brands while ensuring that they maintain their independence and exclusive DNA.
Our Brands
Versace
Our Versace brand has long been recognized as one of the world’s leading international fashion design houses and is synonymous with Italian glamour and style. Founded in 1978 in Milan, Versace is known for its iconic and unmistakable style and unparalleled craftsmanship. Over the past several decades, the House of Versace has grown globally from its roots in haute couture, expanding into the design, manufacturing, distribution and retailing of ready-to-wear, accessories, footwear, eyewear, watches, jewelry, fragrance and home furnishings businesses. Versace’s design team is led by Donatella Versace, who has been the brand’s artistic director for over 20 years. Versace distributes its products through a worldwide distribution network, which includes boutiques located in the world’s most glamorous cities, its e-commerce site, as well as through the most prestigious department and specialty stores worldwide.
Jimmy Choo
Our Jimmy Choo brand offers a distinctive, glamorous and fashion-forward product range, enabling it to develop into a leading global luxury accessories brand, whose core product offering is women’s luxury shoes, complemented by accessories, including handbags, small leather goods, scarves and belts, as well as a growing men’s luxury shoes and accessory business. In addition, certain categories, such as fragrances and eyewear, are produced under licensing agreements. Jimmy Choo’s design team is led by Sandra Choi, who has been the Creative Director for the brand since its inception in 1996. Jimmy Choo products are unique, instinctively seductive and chic. The brand offers classic and timeless luxury products, as well as innovative products that are intended to set and lead fashion trends. Jimmy Choo is represented through its global store network, its e-commerce sites, as well as through the most prestigious department and specialty stores worldwide.
Michael Kors
Our Michael Kors brand was launched 40 years ago by Michael Kors, whose vision has taken the Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a global distribution network that has presence in over 100 countries through Company-operated retail stores and e-commerce sites, leading department stores, specialty stores and select licensing partners. Michael Kors is a highly recognized luxury fashion brand in the Americas and Europe with growing brand awareness in other international markets. Michael Kors features distinctive designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Michael Kors offers three primary collections: the Michael Kors Collection luxury line, the MICHAEL Michael Kors accessible luxury line and the Michael Kors Mens line. The Michael Kors Collection establishes the aesthetic authority of the entire brand and is carried by many of our retail stores, our e-commerce sites, as well as in the finest luxury department stores in the world. MICHAEL Michael Kors has a strong focus on accessories, in addition to offering footwear and apparel, and addresses the significant demand opportunity in accessible luxury goods. We have also been developing our men’s business in recognition of
6
Table of Contents
the significant opportunity afforded by the Michael Kors brand’s established fashion authority and the expanding men’s market. Taken together, our Michael Kors collections target a broad customer base while retaining our premium luxury image.
Our Segments
We operate in three reportable segments as follows:
• Versace — accounted for approximately 18% of our total revenue in Fiscal 2021 and includes worldwide sales of Versace products through 210 retail stores (including concessions) and e-commerce sites, through 868 wholesale doors (including multi-brand stores), as well as through product and geographic licensing arrangements.
• Jimmy Choo — accounted for approximately 10% of our total revenue in Fiscal 2021 and includes worldwide sales of Jimmy Choo products through 227 retail stores (including concessions) and e-commerce sites, through 450 wholesale doors (including multi-brand stores), as well as through product and geographic licensing arrangements.
• Michael Kors — accounted for approximately 72% of our total revenue in Fiscal 2021 and includes worldwide sales of Michael Kors products through 820 retail stores (including concessions) and e-commerce sites, through 2,852 wholesale doors, as well as through product and geographic licensing arrangements.
In addition to these reportable segments, we have certain corporate costs that are not directly attributable to our brands and, therefore, are not allocated to segments. Such costs primarily include certain administrative, corporate occupancy, shared service and information systems expenses, including Enterprise Resource Planning (“ERP”) system implementation costs. In addition, certain other costs are not allocated to segments, including restructuring and other charges (including transition costs related to our recent acquisitions), impairment costs and COVID-19 related charges. The segment structure is consistent with how our chief operating decision maker plans and allocates resources, manages the business and assesses performance. All intercompany revenues are eliminated in consolidation and are not reviewed when evaluating segment performance. For additional financial information regarding our segments and corporate unallocated expenses, see Segment Information note in the accompanying consolidated financial statements.
Industry
We operate in the global personal luxury goods industry. Through 2019, the personal luxury goods market grew at a 5% rate over the past 20 years, with more recent growth driven by stronger Chinese demand from both international and local consumers and demographic and socioeconomic shifts resulting in younger consumers purchasing more luxury goods. Then, in 2020, due to the impact of the COVID-19 crisis, the personal luxury goods market declined 23%. According to Bain studies* , the personal luxury goods market is predicted to increase at a 10% compound annual growth rate between 2020 and 2025, and will return to 2019 levels by the end of 2021 or in 2022. Future growth will be driven by e-commerce, Chinese consumers and younger generations. By 2025, Bain studies estimate over 30% of personal luxury goods sales will occur online, Chinese consumers will represent nearly half of total global personal luxury goods sales, and Gen Z and Gen Y combined will make up at least two-thirds of the market. As the personal luxury goods market continues to evolve, Capri is committed to creating engaging luxury experiences globally. In our view, increased customer engagement and tailoring merchandise to customer shopping and communication preferences are key to growing market share. We believe that our innovative and luxurious product offerings and customer engagement initiatives across all three brands position us to capitalize on the continued growth of the global personal luxury goods industry.
* Comprised of: Bain – Altagamma Luxury Goods Worldwide Market Study, Spring 2021, May 17th 2021 update and Bain – Altagamma Luxury Goods Worldwide Market Study, Spring 2021 (Together, the “Bain studies”). These studies were prepared by the Bain & Company and Altagamma and can be obtained free of charge or at a nominal cost by contacting Bain & Company’s media contacts at aliza.medina@bain.com or dan.pinkney@bain.com. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources.
Geographic Information
We generate revenue globally through our three reportable segments, as described above. We sell our Versace, Jimmy Choo and Michael Kors products through retail and wholesale channels of distribution in three principal geographic markets: the Americas (U.S., Canada and Latin America), EMEA (Europe, Middle East and Africa) and Asia (including Australia). We also have wholesale arrangements pursuant to which we sell products to our geographic licensees. In addition, we have licensing agreements through which we license to third parties the use of our Versace, Jimmy Choo and Michael Kors brand names and trademarks, certain production rights and sales and/or distribution rights with respect to our brands.
7
Table of Contents
The following table details our revenue by segment and geographic location (in millions):
Fiscal Years Ended
March 27,
2021 March 28,
2020 March 30,
2019
Versace revenue - the Americas $ 201 $ 186 $ 22
Versace revenue - EMEA 276 420 66
Versace revenue - Asia 241 237 49
Total Versace
718 843 137
Jimmy Choo revenue - the Americas 102 107 96
Jimmy Choo revenue - EMEA 146 282 321
Jimmy Choo revenue - Asia 170 166 173
Total Jimmy Choo
418 555 590
Michael Kors revenue - the Americas 1,869 2,822 3,064
Michael Kors revenue - EMEA 607 821 892
Michael Kors revenue - Asia 448 510 555
Total Michael Kors
2,924 4,153 4,511
Total revenue - the Americas 2,172 3,115 3,182
Total revenue - EMEA 1,029 1,523 1,279
Total revenue - Asia 859 913 777
Total revenue $ 4,060 $ 5,551 $ 5,238
Competitive Strengths
We believe that the following strengths differentiate us from our competitors:
Global Fashion Luxury Group Led by a World-Class Management Team and Renowned Designers . We are a global fashion luxury group, consisting of three iconic brands defined by fashion luxury products with a reputation for world-class design and innovation. The design leadership of our founder-designers Donatella Versace, Sandra Choi and Michael Kors is a unique advantage that we possess. Our founder-led design teams are supported by our senior management team with extensive experience across a broad range of disciplines in the retail industry, including design, sales, marketing, public relations, merchandising, real estate, supply chain and finance. With an average of 26 years of experience in the retail industry, including at a number of public companies, and an average of 16 years experience with our brands, our senior management team has strong creative and operational experience and a successful track record.
For over 20 years, Donatella Versace has been the artistic director, molding Versace’s iconic style. A true visionary with an intuition for how to blend fashion, design and culture, Donatella continues to honor the rich and storied Versace heritage founded in 1978, while constantly evolving and adapting the luxury house to ensure the brand’s continued relevance. Donatella’s most recent collections for Versace are a testament to her unique design vision and are equal parts bold and refined, evoking both a rock and roll spirit as well as runway glamour. Versace designs have been worn by the world’s most famous celebrities and most sought-after super models.
Jimmy Choo’s design team is led by Sandra Choi, who has been the Creative Director for the Jimmy Choo brand since its inception in 1996. Jimmy Choo products are unique, instinctively seductive and chic. The Jimmy Choo brand offers classic and timeless luxury products, as well as innovative products that are intended to set and lead fashion trends. Jimmy Choo’s products have a strong red carpet presence and are often worn by global celebrities.
8
Table of Contents
The Michael Kors brand was launched 40 years ago by Michael Kors, a world-renowned designer, who is responsible for conceptualizing and directing the design of our Michael Kors brand products. We believe that the Michael Kors brand name has become synonymous with luxurious fashion that is timeless and elegant, expressed through the brand’s sophisticated accessories and ready-to-wear collections. Each of our Michael Kors brand collections exemplifies the jet-set lifestyle and features high quality designs, materials and craftsmanship. Michael Kors has received a number of awards, which recognize the contribution he and his team have made to the fashion industry and our Company. Some of the most widely recognized global trendsetters and celebrities wear our Michael Kors brand collections.
Expertise in the Accessories and Footwear Product Categories. We have strong group expertise in accessories and footwear. The strength of our Michael Kors luxury collection and our accessible luxury MICHAEL Michael Kors line have allowed us to expand our brand awareness and position Michael Kors as one of the leading global luxury brands in the accessories product categories. Capitalizing on the success of our accessories product category, we continue to further develop the accessories businesses for Jimmy Choo and Versace, bringing our accessories expertise, including our product category knowledge, our merchandising best practices and our substantial group buying power to these brands. Our goal is to increase Versace’s women’s and men’s accessories and footwear penetration from less than 35% of revenues in Fiscal 2021 to 60% of Versace’s revenues over time, and to increase Jimmy Choo's women's accessories penetration from approximately 20% of revenues in Fiscal 2021 to 50% of Jimmy Choo’s revenues over time.
Exceptional Retail Store Footprint. Versace operates in three primary retail formats: boutiques, outlet and e-commerce. We operated 210 Versace retail stores as of March 27, 2021, in some of the most fashionable cities and the most sought-after shopping destinations around the world. Versace’s products are distributed worldwide through a global network of highly specialized stores, which average approximately 1,700 square feet. In addition, we operate Versace e-commerce sites in the U.S., Europe and China (covering 85 countries worldwide).
We operated 227 Jimmy Choo retail stores as of March 27, 2021, in some of the most premier locations worldwide. During Fiscal 2021, we designed a refresh to our existing retail store format and will begin to roll out this new concept in Fiscal 2022 to both new stores and existing stores. Jimmy Choo retail stores, comprised of full-price stores and outlets, average approximately 1,400 square feet. In addition, we operate Jimmy Choo e-commerce sites in the U.S., certain parts of Europe, Japan and have a localized site in China.
We operated 820 Michael Kors stores as of March 27, 2021 with four primary retail store formats: collection stores, lifestyle stores, outlet stores and e-commerce sites. Michael Kors collection stores are located in some of the world’s most prestigious shopping areas and average approximately 2,900 square feet in size. The Michael Kors lifestyle stores are located in some of the world’s most frequented metropolitan shopping locations and leading regional shopping centers, and average approximately 2,700 square feet in size. We also extend our reach to additional consumer groups through our outlet stores, which average approximately 4,400 square feet in size. In addition, we also operate Michael Kors e-commerce sites in the U.S., Canada, certain parts of Europe, China, Japan and South Korea.
World-class Omni and CRM capabilities. We have omni-channel capabilities from best-in-class digital platforms to state-of-the-art distribution facilities globally, which we leverage across businesses. As part of our plan to continue to implement omni-channel capabilities throughout our businesses, we have begun leveraging our world class distribution centers, including in Venlo, Netherlands and Teterboro, New Jersey, to serve multiple brands.
Strong Relationships with Premier Department Stores . We partner with leading wholesale customers, such as Macy's, Saks Fifth Avenue, Bloomingdale’s and Holt Renfrew in North America, as well as Harrods, Harvey Nichols, Printemps, Selfridges and Galeries Lafayette in Europe. These relationships enable us to access large numbers of our key consumers in a targeted manner. Our “shop-in-shops” have specially trained staff, as well as customized fixtures, wall casings, decorative items, flooring and provide department store consumers with a more personalized shopping experience than traditional retail department store configurations. We have engaged with our wholesale customers on various initiatives and have continued to enter into innovative supply chain partnerships designed to increase the speed at which our luxury fashion products reach the ultimate consumer. We plan to increase Versace’s and Jimmy Choo’s presence in certain luxury department stores, and for Michael Kors, we have continued to strategically reduce shipments with the intent to drive more full-price sell through in the wholesale channel.
9
Table of Contents
Business Strategy
Our goal is to continue to create long-term shareholder value by increasing our revenue and profits and strengthening our global brands. We also believe that sound environmental and social policies are both ethically correct and fiscally responsible. To that end, we are committed to improving the way we work in order to better the world in which we live. We plan to achieve our business strategy by focusing on the following strategic initiatives:
Leverage group expertise and capabilities. We will continue to leverage our group expertise in accessories and footwear to fuel growth across our portfolio of brands, implementing the best practices from our Michael Kors core accessories business to our Versace and Jimmy Choo brands. We will also continue to prioritize the development of our e-commerce platforms and omni-channel capabilities for our brands, leveraging our broad expertise and capabilities in this area. With the addition of Versace, we see a number of opportunities to create long-term operational synergies as we combine our global competencies and footprint. These synergies will be primarily focused on opportunities in our supply chain, information systems, back office support and manufacturing.
Continue to increase our presence in Asia. We plan to continue to diversify our group’s global footprint with an emphasis on the Asia market, where we believe each of our three brands continue to have the potential to significantly grow market share in the region.
Integrate Versace and continue to build on the brand ’ s luxury image. We plan to grow the Versace business to $2 billion in revenues over time. There are five strategic initiatives that we will focus on to achieve this goal. First, we plan to build on Versace’s luxury runway momentum and capitalize on our iconic brand codes. Second, we will enhance Versace’s powerful and storied marketing. Third, we plan to increase Versace’s global footprint from 210 stores to 300 retail stores. Fourth, we will accelerate Versace’s e-commerce development to create a full omni-channel experience. Finally, we plan to leverage our group’s expertise to expand Versace’s women’s and men’s accessories and footwear businesses from less than 35% of revenues to a target of 60% of the brand's revenues over time, while maintaining Versace’s authoritative presence in women’s and men’s ready-to-wear.
Continue to execute on our strategies to grow the Jimmy Choo brand. We plan to continue to implement our growth strategies for Jimmy Choo, with a goal of reaching $1 billion in revenues over time. To achieve this goal, we plan to expand Jimmy Choo’s distribution by accelerating e-commerce and omni-channel developments and increasing our global retail footprint to 300 retail stores in the most fashionable shopping destinations around the world. We also have a significant opportunity to increase women’s accessories to approximately 50% of Jimmy Choo’s revenue by expanding the breadth of new collections. At the same time, we plan to continue to grow footwear sales, in part by expanding our fashion active and casual offerings.
Continue to leverage the strength of our Michael Kors brand, which remains the foundation for our fashion luxury group. Our goal is to position Michael Kors to become a stronger and more profitable brand. Our focus on product innovation has greatly improved newness across all product categories for our Michael Kors brand. In accessories, we continue to introduce new product groups, as well as unique design, style and craftsmanship. In footwear, we plan to grow our fashion active product offerings and continue fashion innovation. In women’s apparel, our KORS style head-to-toe dressing remains our key focus, along with our strategic dress and outerwear categories. We will continue to increase product offerings within menswear, including our new men's footwear collection. We also plan to continue to focus on brand engagement, capitalizing on Michael Kors’ leading red carpet and social media presence. Our strategy to enhance customer experience by expanding our omni-channel capabilities also remains a key priority.
Execute on our corporate social responsibility strategy. Our corporate social responsibility strategy is divided into three areas: (i) Our World : focused on actions across our operations and supply chain, meant to significantly reduce our environmental impact; (ii) Our Community : fostering a supportive, healthy, diverse and inclusive workplace for all of our employees; and (iii) Our Philanthropy : connecting the talents, energy and success of each of our brands to those in need around the world. We have set targets to be 100% carbon neutral in our direct operations and to source 100% of energy for our owned and operated facilities from renewable sources by 2025. Building on our net zero carbon emissions commitment, and in an effort to deliver on the goals of the Paris Agreement, we will also set emissions reduction targets across our operations and supply chain with the Science Based Targets initiative by the end of calendar 2022. We have additionally committed to, and have already been working towards, a number of important initiatives, including:
• All plastic in packaging to be recyclable, compostable, recycled or reusable by 2025
• 100% of point-of-sale packaging materials to be recyclable or sustainably sourced by 2025
10
Table of Contents
• Partnering with key suppliers to reduce water use
• Traceability of our supply chain
• Sourcing at least 95% of our leather from certified tanneries by 2025
• Furthering diversity and inclusion within the organization, including through our Global D&I Council
• Supply chain empowerment programs focused on human rights and fair wages to be implemented in line with the United Nations Framework for Corporate Action on Workplace Women’s Health and Empowerment by 2025
Collections and Products
Our total revenue by major product category is as follows (in millions):
Fiscal Years Ended
March 27,
2021 % of
Total March 28,
2020 % of
Total March 30,
2019 % of
Total
Accessories $ 2,158 53.2% $ 2,933 52.8% $ 3,139 59.9%
Footwear 796 19.6% 1,100 19.8% 1,023 19.5%
Apparel 720 17.7% 1,069 19.3% 698 13.3%
Licensed product 185 4.6% 222 4.0% 218 4.2%
Licensing revenue 155 3.8% 201 3.6% 156 3.0%
Other 46 1.1% 26 0.5% 4 0.1%
Total revenue $ 4,060 $ 5,551 $ 5,238
Versace
Versace is one of the leading international fashion design houses and a symbol of Italian luxury worldwide, which has developed its expertise in haute couture to include ready-to-wear, accessories, footwear and home furnishings. Generally, Versace’s haute couture retails up to $100,000, ready-to-wear retails from $270 to $9,500, accessories retail from $85 to $3,500 and footwear retails from $300 to $2,500.
Certain product categories, such as Versace Jeans Couture, eyewear, fragrances, jewelry, watches, and home furnishings, are produced under product licensing agreements. Swinger SA is the exclusive licensee for Versace Jeans Couture, Luxottica is the exclusive licensee for Versace eyewear, Euroitalia is the exclusive licensee for Versace fragrances, Samra International is the exclusive licensee for Versace jewelry, Vertime is the exclusive licensee for Versace watches and Poltrona Frau is the exclusive licensee for Versace home furnishings. Generally, Versace Jeans Couture retail from $50 to $2,000, Versace eyewear retails from $200 to $500, Versace fragrances retail from $70 to $400, Versace jewelry retails from $500 to $7,500, Versace watches retail from $500 to $3,500 and Versace home furnishings, which includes a variety of products, generally retails from $700 to $52,000.
Jimmy Choo
Jimmy Choo is a leading global luxury accessories brand and offers a distinctive, glamorous and fashion-forward product range, whose core product offerings are women’s luxury shoes, complemented by accessories, including handbags, small leather goods, scarves and belts, as well as a men’s luxury shoes and accessories business. Generally, Jimmy Choo women’s and men's luxury shoes retail from $400 to $5,500 and accessories retail from $200 to $4,500.
Certain product categories, such as Jimmy Choo fragrances and eyewear, are produced under product licensing agreements. Interparfums SA is the exclusive licensee for Jimmy Choo fragrances and Safilo SpA is the exclusive licensee for Jimmy Choo eyewear. Generally, Jimmy Choo eyewear retails from $200 to $550 and Jimmy Choo fragrances retail from $80 to $220.
11
Table of Contents
Michael Kors
Michael Kors has three primary collections that offer accessories, footwear and apparel: Michael Kors Collection, MICHAEL Michael Kors and Michael Kors Mens. The three primary collections and licensed products are offered through our own Michael Kors retail stores and e-commerce businesses, in department stores around the world and by our exclusive licensees to wholesale customers in addition to select retailers. The Michael Kors Collection is a sophisticated designer collection for women based on a philosophy of essential luxury and pragmatic glamour and includes accessories, primarily handbags and small leather goods, ready-to-wear and footwear. Generally, the Michael Kors Collection women’s handbags and small leather goods retail from $300 to $6,000, footwear retails from $300 to $1,500 and ready-to-wear retails from $400 to $7,500. MICHAEL Michael Kors is the accessible luxury collection and offers women’s accessories, primarily handbags and small leather goods, as well as footwear and apparel and is carried in all of the Michael Kors lifestyle stores and leading department stores around the world. MICHAEL Michael Kors offers handbags designed to meet the fashion and functional requirements of our broad and diverse consumer base. Generally, MICHAEL Michael Kors handbags retail from $200 to $750, small leather goods retail from $50 to $250, footwear retails from $50 to $300 and apparel retails from $75 to $700. Michael Kors Mens is an innovative collection of men’s ready-to-wear, accessories, and footwear with a modern American style. Michael Kors Mens apparel generally retails from $50 to $1,000, men’s accessories generally retail from $50 to $800 and men’s footwear generally retails from $150 to $400.
Certain product categories, including watches, jewelry, eyewear and fragrance, are produced under product licensing agreements. Fossil is our exclusive licensee for Michael Kors watches and jewelry, including our Michael Kors ACCESS smartwatches and our fine jewelry line. Luxottica is our exclusive licensee for Michael Kors distinctive eyewear inspired by our collections. Estée Lauder is Michael Kors exclusive women’s and men’s fragrance licensee. Generally, Michael Kors fashion watches retail from $150 to $600, Michael Kors ACCESS smartwatches retail from $300 to $500, Michael Kors jewelry retails from $50 to $500, Michael Kors eyewear retails from $100 to $400 and Michael Kors fragrance and related products generally retail from $50 to $150.
Advertising and Marketing
Our marketing and advertising programs are designed to build brand awareness for each of our luxury houses as well as highlight our product offerings. We use a 360-degree marketing strategy for each of our brands to deliver a consistent message across each brand's advertising communications, social media, celebrity dressing, special events and direct marketing activities at a national, regional and local level. Our campaigns are increasingly being executed through digital and social media platforms to drive further engagement with younger consumers.
Our brands introduce their new collections annually with fashion shows and other fashion events. These fashion events, in addition to celebrity red carpet dressing moments, generate extensive domestic and international media and social media coverage. The Versace and Michael Kors semi-annual runway shows and Jimmy Choo celebrity placements generate extensive media coverage. Jimmy Choo is also the leading brand in editorial coverage for women’s luxury shoes globally.
We believe our renowned brand founders, as well as our high-profile brand ambassadors and well-known social media influencers across our marketing programs helps expand brand awareness and drive cultural relevance.
In Fiscal 2021, we recognized approximately $137 million in advertising and marketing expenses globally. We engage in a wide range of integrated marketing programs across various marketing channels, including but not limited to email marketing, print advertising, outdoor advertising, digital marketing, social media, public relations outreach, visual merchandising and partnership marketing, in an effort to engage our existing and potential customer base and ultimately stimulate sales in a consumer-preferred shopping venue.
Our growing e-commerce businesses provide us with an opportunity to increase the size of our customer database and to communicate with our consumers to increase online and physical store sales, as well as to continue to build global brand awareness for our brands. We are continuously improving the functionalities and features on our e-commerce sites to create innovative ways to keep our brands at the forefront of consumers’ minds by offering a broad selection of products, including accessories, apparel, and footwear. Since e-commerce growth is critical to our overall growth strategy, we plan to accelerate Versace’s and Jimmy Choo’s e-commerce and omni-channel development, while continuing to work with select e-commerce partners.
12
Table of Contents
Manufacturing and Sourcing
We generally contract for the purchase of finished goods principally with independent third-party manufacturing contractors, whereby the manufacturing contractor is generally responsible for the entire manufacturing process, including the purchase of piece goods and trim for our Jimmy Choo and Michael Kors brands. For the Versace brand, some of the piece goods and trim are separately purchased by Versace and provided to the manufacturers, and some are sourced directly by the manufacturers, as further described below.
Versace has a centrally managed production model for the majority of its products, and buys raw materials and components for these products. All raw materials arrive in a central warehouse in Novara, Italy and are distributed to independent third-party manufacturing contractors after the quality control process is complete. The vast majority of Versace’s production is located in Italy. The remaining production occurs elsewhere in EMEA and a small portion is produced in Asia.
Jimmy Choo products are manufactured by independent third-party manufacturing contractors and our recently acquired Italian atelier and shoe manufacturer Alberto Gozzi S.r.L ("Gozzi"). Most of Jimmy Choo’s products are produced by specialists in Italy, supported by other factories across Europe, with a small portion produced in Asia. Jimmy Choo has a product development facility in Florence. Jimmy Choo typically purchases finished goods and does not purchase raw materials, except for product development purposes.
Michael Kors contracts for the purchase of finished goods principally with independent third-party manufacturing contractors that are generally responsible for the entire manufacturing process, including the purchase of piece goods and trim. Product manufacturing for the Michael Kors brand is allocated among third-party agents based on their capabilities, the availability of production capacity, pricing and delivery. Michael Kors also has relationships with various agents who source finished goods with numerous manufacturing contractors on its behalf. This multi-supplier strategy provides specialist skills, scalability, flexibility and speed to market, as well as diversifies risk. In Fiscal 2021 and Fiscal 2020, one third-party agent sourced approximately 26% of Michael Kors finished goods purchases, based on unit volume. Michael Kors’ largest manufacturing contractor, who produces its products in Asia and who Michael Kors has worked with for approximately 20 years, accounted for the production of approximately 18% of its finished products, based on dollar volume in Fiscal 2021. Nearly all of our Michael Kors products were produced in Asia in Fiscal 2021.
The manufacturing contractors and agents for our brands operate under the close supervision of our global manufacturing divisions and buying agents located in North America, Europe and Asia. All products are produced according to our specifications. Production staff monitors manufacturing at supplier facilities in order to correct problems prior to shipment of the final product. Quality assurance is focused on as early as possible in the production process, allowing merchandise to be received at the distribution facilities and shipped to customers with minimal interruption. See “Import Restrictions and Other Governmental Regulations” and Item 1A. —“Risk Factors” — “We primarily use foreign manufacturing contractors and independent third-party agents to source our finished goods, which poses legal, regulatory, political and economic risks to our business operations.”
Our future manufacturing and sourcing strategy includes purchasing luxury manufacturing facilities in Italy to support all of our brands, pursuing manufacturing synergies across brands and securing capacity and improving our expertise in development and delivery. While the fashion design process will remain independently managed by each of our brands, we believe that creating a manufacturing center of excellence, which would combine all functions that support our design teams, from leather and hardware purchases to investment in machinery and systems, will create synergies and efficiencies for our global fashion luxury group.
Distribution
Versace owns a central warehouse in Novara, Italy, managed by a third party, which acts as a global hub for Versace’s primary operations. Versace also has a leased warehouse near Novara operated by the same third party, which serves as a distribution point for e-commerce operations and reverse logistics. From these warehouses, products are shipped to regional warehouses that are operated by third parties. The main regional warehouses are located in New Jersey, Hong Kong, Beijing and Tokyo, and support the Versace retail and e-commerce businesses. The e-commerce distribution for the other regions is conducted through third party providers in Columbus, Ohio and Beijing, China. Versace’s wholesale business is mainly serviced from three central warehouses located in Italy, the United States and Japan.
Jimmy Choo's primary distribution facility is our Company-owned and operated distribution facility in the Netherlands. From there, products are shipped to regional warehouses in the United Kingdom, the United States, Canada, China, Hong Kong, South Korea, Japan and United Arab Emirates, largely supporting the Jimmy Choo retail and e-commerce businesses.
13
Table of Contents
Shipments to wholesale customers globally are made from the Netherlands and the United States, with some further local fulfillment. All of the distribution facilities utilized by Jimmy Choo are operated by third parties and are shared with other unaffiliated businesses with the exception of our distribution facility in the Netherlands. This flexible method reinforces the speed and efficiency of the supply chain and allows the business to deliver Jimmy Choo product and collections to market rapidly and in line with the industry’s fashion calendar.
Michael Kors primary distribution facility in the United States is a leased facility in Whittier, California, which is directly operated and services our Michael Kors retail stores, e-commerce site and wholesale operations in the United States. We also engage in omni-channel order fulfillment by filling online orders through our Michael Kors retail stores and through our click-and-collect service offerings. Our primary Michael Kors distribution facility in Europe is our Company-owned and operated distribution facility in the Netherlands, which supports our European operations for our Michael Kors brand, including our European e-commerce sites. We also have a regional Michael Kors distribution center in Canada, which is leased, as well as regional Michael Kors distribution centers in New Jersey, China, Hong Kong, Japan, South Korea and Taiwan, which are operated by third-parties.
Intellectual Property
We own VERSACE, JIMMY CHOO and MICHAEL KORS trademarks, as well as other material trademarks, copyrights, design and patent rights related to the production, marketing and distribution of our products, both in the United States and in other countries in which our products are principally sold. We also have applications pending for a variety of related trademarks, copyrights, designs and patents in various countries throughout the world. As the worldwide usage of our material trademarks, copyrights, designs and patents continue to expand, we continue to strategically apply to register them in key countries where they are used. We expect that our material intellectual property will remain in full force and effect for as long as we continue to use and renew them.
We aggressively police our intellectual property and pursue infringers both domestically and internationally. In addition, we pursue counterfeiters in the United States, Europe, the Middle East, Asia and elsewhere in the world in both online and offline channels, working with our network of customs authorities, law enforcement, legal representatives and brand specialists around the world as well as involvement with industry associations and anti-counterfeiting organizations.
Information Systems
Each of our three brands currently operates using their legacy systems for finance and accounting, supply chain, inventory control, point-of-sale transactions, store replenishment and other functions. Our long-term strategy includes consolidating certain systems across our brands over time to create operational efficiencies, as well as to achieve a common platform across the Company. During Fiscal 2020, we embarked on a multi-year ERP implementation, to conform the majority of our processes onto one global system that would support finance and accounting, procurement, inventory control and store replenishment. The implementation of the ERP required a significant investment in human and financial resources. As a result of COVID-19 and our need to significantly reduce our capital expenditures in order to protect our liquidity and cash flows, we temporarily suspended our ERP project. The project has resumed as of the fourth quarter of Fiscal 2021. See Item 1A. “Risk Factors” — “A material delay or disruption in our information technology systems or e-commerce websites or our failure or inability to upgrade our information technology systems precisely and efficiently could have a material adverse effect on our business, results of operations and financial condition.”
Human Capital Management
At Capri Holdings, we strive to create workplaces where our employees and the workers across our supply chain thrive. Through our benefits packages, learning and development programs, focus on diversity and inclusion, wellness programs and supply chain empowerment initiatives, we continue to make significant investments in our Capri community.
Employee Profile. At the end of Fiscal 2021, 2020 and 2019, we had approximately 13,800, 17,000 and 17,800 total employees, respectively. As of March 27, 2021, we had approximately 9,300 full-time employees and approximately 4,500 part-time employees. Approximately 10,400 of our employees were engaged in retail selling and administrative positions and our remaining employees were engaged in other aspects of our business as of March 27, 2021. As of March 27, 2021, we have approximately 2,400 employees covered by collective bargaining agreements in certain European countries. We consider our relations with both our union and non-union employees to be good.
14
Table of Contents
Benefits and Compensation. We maintain comprehensive benefits and compensation packages to attract, retain and recognize our employees. Our health and welfare benefit program is designed to provide a wide range of benefits to meet the health care, financial and work/life needs of eligible employees. Benefits include, among others, medical, dental and vision plans, life insurance, short and long-term disability coverage, retirement plans (with matching contributions where applicable), paid parental leave, gender reassignment coverage and fertility support benefits in the United States, and a corporate wellness program. We also offer employees paid time off, including to volunteer with select charitable organization, to get the COVID-19 vaccine and to quarantine in accordance with government or health organization recommended quarantine guidelines (in addition to any COVID-19 mandated paid sick leave at the federal, state, or local level). Employees are also entitled to discounts on our merchandise.
Learning and Development. We honor our employees through our dedication to development. A majority of our executives have participated in an executive leadership development program offered in partnership with the Center for Creative Leadership, and more than 800 of our people managers have participated in leadership development programs. These programs are aimed at equipping our leaders with strategies to effectively navigate and drive change, and to build and strengthen cross-functional relationships. All full-time employees also participate in a formal performance review process annually, and receive annual trainings on important topics including compliance, ethics and integrity, respect in the workplace and information security as a part of our efforts to maintain a safe, positive and inclusive work environment. In Fiscal 2021, we also implemented diversity and inclusion trainings focused on unconscious bias, microaggressions and workplace diversity, sensitivity and inclusion.
Diversity and Inclusion. Diversity and inclusion are embedded in our DNA. We foster an inclusive environment where employees and customers of diverse backgrounds are respected, valued and celebrated. We are proud of our commitment to diversity, equality and inclusion, and will continue to advance these principles through meaningful short and long term actions across the globe. We recently appointed a Head of Diversity and Inclusion and established a Global Diversity and Inclusion Council, comprised of leaders across our brands focused on bringing Capri’s diversity and inclusion strategy to life. Our commitment to diversity and inclusion is supported by three pillars:
Capri Culture - Our commitment to diversity extends beyond representation. We are building an inclusive space where all employees have the opportunity to realize their full potential and excel, while contributing to our success in a meaningful way.
Capri Talent - Differences in ideas and experiences allow our Company to thrive. We are attracting, advancing and advocating for a workforce that reflects the diversity of the world around us.
Capri Community - Through diversity and inclusion comes understanding and strength. Our responsibility to promote equality is not just to those who work with us, but to our industry, the customers we serve and the communities around us.
In Fiscal 2021, we formed The Capri Holdings Foundation for the Advancement of Diversity in Fashion. The Company has pledged $20 million to further the foundation’s mission of supporting diversity, inclusion and equality throughout the fashion industry.
Health and Safety . Everyone working on behalf of our Company is entitled to work in a safe environment. Capri’s global safe workplace program, which includes employee traveler and emergency response alerts, raises awareness and provides safety resources tailored for workers in different work environments – from our distribution centers to our retail stores. In addition, as we continue to navigate the COVID-19 pandemic, we continue to prioritize the safety of our employees and our customers and to do our part to help stop the spread within our communities. We enhanced health and safety protocols at our retail stores, distribution centers and corporate offices, adhered to social distancing measures and provided contact-free shopping opportunities when safe to do so.
Supply Chain Empowerment. Our community extends beyond our direct employees and our corporate social responsibility program drives us toward greater engagement with our suppliers. We are dedicated to conducting our operations throughout the world on principles of ethical business practice and recognition of the dignity of workers. Through our Code of Conduct for Business Partners and Factory Social Compliance Program, we partner with our suppliers on important human rights, health and safety, environmental and compliance issues.
15
Table of Contents
Competition
We face intense competition in the product lines and markets in which we operate from both existing and new competitors. Our products compete with other branded products within their product category. In varying degrees, depending on the product category involved, we compete on the basis of style, price, customer service, quality, brand prestige and recognition, among others. In our wholesale business, we compete with numerous manufacturers, importers and distributors of products like ours for the limited space available for product display. Moreover, the general availability of manufacturing contractors allows new entrants easy access to the markets in which we compete, which may increase the number of our competitors and adversely affect our competitive position and our business. We believe, however, that we have significant competitive advantages because of the recognition of our brands and the acceptance of our brands by consumers. See Item 1A. “Risk Factors” — “The markets in which we operate are highly competitive, both within North America and internationally, and increased competition based on a number of factors could cause our profitability and/or gross margins to decline.”
Seasonality
We experience certain effects of seasonality with respect to our business. We generally experience greater sales during our third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during our first fiscal quarter.
Import Restrictions and Other Governmental Regulations
Virtually all of our imported products are subject to duties which may impact the costs of such products. In addition, countries to which we ship our products may impose safeguard quotas to limit the quantity of products that may be imported. We rely on free trade agreements and other supply chain initiatives in order to maximize efficiencies and cost savings relating to product importation. For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the U.S. Generalized System of Preferences ("GSP") program. The GSP program expired on December 31, 2020. If the GSP program is not renewed or otherwise made retroactive, we would experience significant additional duties and our gross margin could be negatively impacted. Additionally, we are subject to government regulations relating to importation activities, including related to U.S. Customs and Border Protection ("CBP"0) withhold release orders. The imposition of taxes, duties and quotas, the withdrawal from or material modification to trade agreements and/or if CBP detains shipments of our goods pursuant to a withhold release order could have a material adverse effect on our business, results of operations and financial condition. If additional tariffs or trade restrictions are implemented by the U.S. or other countries, the cost of our products could increase which could adversely affect our results of operations and financial condition. Additionally, we are subject to government regulations relating to product labeling, testing and safety. We maintain a global customs and product compliance organization to help manage our import and related regulatory activity.
Corporate Social Responsibility
As a global fashion luxury group, we recognize the impact that our operations can have on the environment and the social well-being of others. We have developed a corporate social responsibility strategy in order to drive positive change within our organization and our world. Our Corporate Social Responsibility strategy outlines our global strategy to achieve significant, measurable goals across a range of important environmental and social sustainability issues, including material sourcing, greenhouse gas emissions, water use, waste reduction, diversity and inclusion and philanthropic giving. See “Business Strategy” — “Execute on our corporate social responsibility strategy.”
Our Company’s corporate social responsibility strategy is divided into three areas:
• Our World – focused on actions across our operations and supply chain, meant to significantly reduce our environmental impact.
• Our Community – fostering a supportive, healthy, diverse and inclusive workplace for all of our employees.
• Our Philanthropy – connecting the talents, energy and success of each of our brands to those in need around the world.
A copy of our Corporate Social Responsibility report is available on our website at www.capriholdings.com/csr .
16
Table of Contents
Available Information
Our investor website can be accessed at www.capriholdings.com . Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website under the caption “Financials” and then “SEC Filings” promptly after we electronically file such materials with, or furnish such materials to, the SEC. No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. Information relating to corporate governance at our Company, including our Corporate Governance Guidelines, our Code of Business Conduct and Ethics for all directors, officers, and employees, and information concerning our directors, Committees of the Board, including Committee charters, and transactions in Company securities by directors and executive officers, is available at our website under the captions “Governance” and “Financials” and then “SEC Filings.” Paper copies of these filings and corporate governance documents are available to shareholders free of charge by written request to Investor Relations, Capri Holdings Limited, 33 Kingsway, London, United Kingdom, WC2B 6UF. Documents filed with the SEC are also available on the SEC’s website at www.sec.gov .