NEW YORK – The US Federal Trade Commission (FTC) has sued to stop Tapestry’s US$8.5 billion (S$11.6 billion) takeover of rival Capri Holdings, marking the first time the Biden administration has used its aggressive antitrust enforcement to try to stop a deal in the fashion accessories sector.
Antitrust enforcers said on April 22 that Tapestry’s acquisition of Capri would raise prices on handbags and accessories in the affordable luxury sector, harming consumers.
Tapestry owns Coach, Kate Spade and Stuart Weitzman; Capri controls labels Michael Kors, Versace and Jimmy Choo.
A combined Tapestry and Capri would be the second-largest personal luxury goods company in the US in sales, behind LVMH and ahead of Gucci owner Kering and Cartier owner Richemont, according to data provider Euromonitor. This would give the new conglomerate close to 10 per cent of the US market for personal luxury goods, which include handbags, clothing, footwear and jewellery.
“With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry,” Mr Henry Liu, director of the FTC’s Bureau of Competition, said in a statement.
Tapestry chief executive officer Joanne Crevoiserat said in an interview that the fashion industry is “intensely competitive” and her company competes with hundreds of other brands.
“The FTC fundamentally misunderstood the marketplace and the way consumers shop,” she said, adding that the shoppers have a “wide range of brands and price points” to choose from.
She also pushed back on the idea that the deal would harm workers, saying that Tapestry offers industry-leading wages and benefits, including for part-time workers.
Capri said the government is ignoring “market realities”, which “overwhelmingly demonstrate that this transaction will not limit, reduce or constrain competition”. In a statement, Capri said it will “vigorously defend this case in court alongside Tapestry and complete the pending acquisition”.
Price competition
The FTC said that Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand compete closely on price, discounts and promotions, innovation, design, marketing and advertising. The agency also alleged that the merger would likely harm the wages and benefits of the combined company’s 33,000 workers, as Tapestry and Capri often compete for employees.
This is the first time that President Joe Biden’s aggressive antitrust enforcement has targeted the fashion sector. Since their appointment, FTC chair Lina Khan and Justice Department antitrust chief Jonathan Kanter have brought the highest number of merger challenges since the US began requiring antitrust reviews before deals close in 1976. Their success in litigation has been more mixed, however, with the FTC losing two high-profile challenges in its first year.
Ms Crevoiserat spearheaded the company’s acquisition of Capri in 2023 with the aim of creating a US-based fashion conglomerate to expand market share in what is known as the accessible luxury sector, selling handbags and other accessories that are high-end but cheaper in price than those sold by European luxury juggernauts such as LVMH Moet Hennessy Louis Vuitton.
The proposed acquisition, announced in August, capped a decade or so of rivalry between Coach and Michael Kors to dominate the US handbag market.
Coach ultimately won the battle after Ms Crevoiserat and her team transformed Tapestry’s signature brand by cutting its exposure to struggling department stores, investing in sprucing up stores and rolling out more expensive versions of its chic but classic handbags.
The prices of Coach’s merchandise, and overall sales, have outpaced those of Michael Kors in recent years as a result.
Tapestry’s proposed purchase of Capri is aimed at parlaying that successful Coach playbook to turn around Michael Kors and, in turn, boost the combined company’s revenue and stock price.
Coach has robust sales in China, while Michael Kors is stronger in Europe. Tapestry executives have said they want to use that complementary market know-how to expand both brands’ geographic reach. Those strategies are on hold until a judge weighs in on the FTC’s case.
The longer the potential acquisition is delayed, the more work they are likely to have to turn around Michael Kors, whose sales have continued to drop.
In the most recent quarter that ended on Dec 30, sales at Capri fell 5.6 per cent to US$1.4 billion. At Tapestry, meanwhile, revenue was up nearly 3 per cent to US$2.1 billion during the same timeframe.
Coach, founded in the 1940s as a family run workshop, went public in 2000.
The company bought the Stuart Weitzman brand in 2015, followed by Kate Spade in 2017, before its renaming as Tapestry. BLOOMBERG
