The attempted $8.5 billion acquisition of fashion conglomerate Capri Holdings by Tapestry, the parent company of esteemed brands Coach and Kate Spade, has been legally restrained by the U.S. Federal Trade Commission (FTC). The commission’s intervention at least temporarily stalls the merger of two key players in American luxury retail. The merger completion would result in six esteemed fashion brands, including Tapestry’s Coach, Kate Spade, and Stuart Weitzman, as well as Capri’s Versace, Jimmy Choo, and Michael Kors, coming under a single corporate umbrella.
This consolidation, if it materializes, could potentially make these high-end brands more formidable against European luxury standard-bearers such as Burberry and Louis Vuitton. However, the FTC asserts that the merge would have adverse repercussions on consumers and employees. The commission’s announcement elaborates, the companies stand toe-to-toe in various product areas from apparel to accessories.
Unveiling Tapestry’s ambitions for a string of acquisitions to fortify its dominance in the fashion sector, Henry Liu, director of the FTC’s Bureau of Competition, expressed concern that the take-over would stifle competition in the affordable handbag segment and significantly jeopardize hourly wage workers by removing the potential for better salaries and working environments.
In response, Tapestry argued that the federal agency’s allegations stem from a fundamental misunderstanding of the retail marketplace and contemporary consumer behavior. The company states that today’s retail climate obliges businesses to attract customers who have diverse brand preferences, shop across different platforms, and are influenced by varied price points.
The company insists that it is subjected to competitive pressures from both upmarket and low-end products. In its view, FTC’s legal challenge neglects the realities of the rapidly evolving $200 billion global luxury industry.
Undeterred by the roadblock, Tapestry has declared its intent to contest the FTC’s motion in court. It also expressed intent to complete the acquisition by the end of 2024. Initially announced by the company in August, the acquisition march had been anticipated to reach its destination sometime in 2024. As per April 10’s financial filing byTapestry, the acquisition had already won approval from European and Japanese regulators, only waiting for U.S. officials to stamp their permission.
CEO Joanne Crevoiserat previously confided to CNBC that the proposed fusion of the companies would grant access to a greater customer outreach internationally. The allied companies would boast over $12 billion in annual revenue and have a presence in more than 75 nations.
Despite both companies pitted against consumer discernment in non-essential spending, Capri has been considerably more susceptible due to its greater dependence on department stores and wholesale retailers when compared to Tapestry. Under the leadership of Crevoiserat, Tapestry executed a successful reinvigoration of the Coach brand, brought in younger customers, and prioritized fashion and consumer loyalty over aggressive discounting to grow sales and increase profit margins. A significant bulk of Tapestry sales are executed through its own website and retail stores; in the most recently reported fiscal quarter, wholesale orders only constituted approximately 10% of global sales.
The stock performance of both companies varies significantly; so far this year, Tapestry’s shares have climbed about 10%, whereas Capri’s have plunged close to 24%. Keep watching this space for updates as the story unfolds.
