FTC Blocks Tapestry-Capri Merger As Tapestry Vows To Fight Saying It’s ‘Pro-Consumer’

The U.S. District Court successful nan Southern District of New York conscionable blocked nan acquisition of Capri Holdings by Tapestry successful a suit brought by nan Federal Trade Commission (FTC) against nan $8.5 cardinal deal.

Judge Jennifer Rochon sided pinch nan FTC successful its allegations that Tapestry’s Coach and Kate Spade brands mixed pinch Capri’s Michael Kors would springiness Tapestry a ascendant stock successful nan “accessible luxury” handbag market.

Tapestry instantly fired back claiming that nan determination is “incorrect connected nan rule and nan facts” and announced plans to entreaty nan ruling. Tapestry claims nan projected merger is some pro-competitive and pro-consumer.

Tapestry has to enactment accelerated since location is simply a February 2025 deadline for nan expiration of nan bonds intended for nan transaction, reported TD Cowen’s Oliver Chen successful a investigation update.

“We do not spot a precocious likelihood of Tapestry and Capri’s intended entreaty being granted arsenic nan entreaty would request to reason that nan judge’s determination was incorrect successful truth aliases law, which is not a mini feat,” he wrote.

FTC Takes A Victory Lap

The FTC claimed in a statement that nan merger would deprive American consumers from nan “benefits of Tapestry and Capri’s head-to-head competition, which includes title connected price, discounts and promotions, innovation, design, marketing, and advertising.”

It besides took rumor pinch imaginable antagonistic effects connected nan complete 30,000 labor impacted by nan merger.

The head of nan FTC’ Bureau of Competition Henry Liu said, “With nan extremity to go a serial acquirer, Tapestry seeks to get Capri to further entrench its stronghold successful nan manner industry.

“This woody threatens to deprive consumers of nan title for affordable handbags, while hourly workers guidelines to suffer nan benefits of higher wages and much favorable workplace conditions.”

No Serial Acquirers Allowed

Effectively, nan FTC took rumor pinch Tapestry’s intent to beryllium a serial acquirer – a business strategy proven by Europe’s luxury conglomerates including LVMH, Kering and Richemont. The determination earnestly hampers Tapestry’s expertise to compete successful nan progressively world luxury market.

Besides Michael Kors, Capri besides owns luxury brands Versace founded successful Italy and London-based Jimmy Choo truthful Tapestry loses broader entree to nan world luxury marketplace wherever conscionable complete one-third of its $6.7 cardinal were made successful fiscal 2024.

On nan different hand, Capri generates conscionable astir half of its $5.2 cardinal revenues internationally pinch two-thirds of Versace’s $1 cardinal and 72% of Jimmy Choo’s $618 cardinal made overseas. By contrast, Michael Kors does only 35% of its $3.5 cardinal successful income globally.

Chen notes that this determination could person “sweeping implications” for immoderate different deals that could perchance frighten nonstop head-to-head competition. “This determination sets meaningful precedent for anti-trust cases going guardant crossed industries.”

Bloomberg Law reported that nan Biden Administration’s FTC and Justice Department antitrust section group a grounds for merger enforcement activity successful 2022, totaling 24 and 26 respectively, according to nan latest numbers available. The mixed 50 merger challenges are nan highest since nan authorities required pre-merge antitrust reappraisal successful 1976.

Perhaps Tapestry will hold to spot really nan adjacent predetermination unfolds to prosecute different acquisitions since nan timing of this 1 is unfortunate, considering nan statement deadline and nan anticipation of being sued by Capri.

Chen sees Tapestry pursuing imaginable acquisitions successful outerwear, jewelry aliases beauty and wellness that would beryllium little apt to raise nan FTC’s hackles.

“This woody isn’t apt to beryllium Tapestry’s last, arsenic nan acquisition of Capri will springiness Tapestry further leverage to make moreover much acquisitions successful nan future,” nan FTC stated.

‘Accessible Luxury’ Definition Vague

The facts which guided nan court’s determination were based connected nan FTC’s master witnesser Dr. Loren Smith and his study of title successful nan “accessible luxury” handbag marketplace defined arsenic bags priced from $100 to $1,000 dollars.

Tapestry based on that location is nary recognized accessible luxury marketplace and that what’s accessible for 1 user whitethorn beryllium inaccessible for another. In addition, its projected 3 handbag brands – Coach, Kate Spade and Michael Kors – hardly would power nan marketplace erstwhile consumers tin take among hundreds of brands and value points.

In addition, manufacture insiders were skeptical of Smith’s analysis, based connected third-party NPD information from 2021 that is some outdated and did not screen nan afloat scope of nan handbag marketplace astatine each value points. It excluded information from galore retailers, direct-to-consumer marque and liquidators. NPD is now portion of Circana.

Chen pointed retired that Dr. Smith’s study did not “pass nan earthy research trial (i.e. not each ‘lost’ Michael Kors income were captured by Coach.)”

In nan ruling, nan tribunal recovered that nan merger would springiness Tapestry a 59% marketplace stock successful nan accessible luxury handbag market, good complete FTC’s period of 30% erstwhile nan “presumption of anticompetitive effects” kicks in.

That 59% marketplace stock seems a stretch. Yes, Coach, Kate Spade and Michael Kors are big, but that big?

Coach generated $5.1 cardinal and Kate Spade $1.3 cardinal past year, but nan institution doesn’t study marque income successful nan U.S. market. Michael Kors made $2.3 cardinal successful nan U.S. Further, nary of nan companies study handbag income alone. They besides connection a wide-range of manner and different accessories.

For context, Americans spent $45 cardinal connected luggage and akin products (i.e. handbags) past year, according to nan Bureau of Economic Analysis.

A Better ‘Michael Kors’ Will Benefit Consumers

Testifying successful nan eight-day trial, designer Michael Kors said nan marque had reached nan “point of marque fatigue” and nan numbers beryllium it. The Michael Kors marque mislaid $766 cardinal successful U.S. income from fiscal 2019 to 2024.

One of nan cardinal motivations for nan merger is for Tapestry and its squad led by Joanne Crevoiserat to revive nan marque and make it basking again. She joined nan institution successful 2019 and was quickly appointed CEO successful August 2020. Since then, Tapestry revenues person grown by 11%, up from $6 cardinal to $6.7 billion.

Stepping up nan creation quotient of Michael Kors, making it much desirable, modern and relevant, would not only use consumers, but besides thief “raise nan tide that lifts each boats” crossed nan full handbag industry.

Anti-Business Versus Pro-Consumer

Before nan commencement of nan trial, GlobalData unit expert Neil Saunders said nan FTC giving nan Tapestry-Capri woody much than a cursory look was “nothing short of ridiculous,” successful a LinkedIn post.

Conceding that nan Kroger and Albertsons merger warrants scrutiny, he believed this 1 successful nan highly discretionary class of handbags does not. In discretionary purchases, nan marketplace corrects itself if allowed to run people pinch consumers deciding nan winners and losers.

Saunders based on that location are “countless” stores and brands from which to bargain handbags and that moreover if merged, Tapestry would “nowhere adjacent dominate” nan market.

In a station aft nan ruling, Saunders put a exclamation constituent connected it:

“The blocking of Tapestry’s acquisition of Capri is absurd. It does not bespeak nan realities of nan market. It treats highly discretionary equipment for illustration they're immoderate benignant of basal commodity. And it shows a ample grade of economical illiteracy.”

See also:

Forbes‘Accessible Luxury’ On Trial As FTC Moves To Block Tapestry From Acquiring CapriBy Pamela N. Danziger