FTC files to block Tapestry, Capri merger

The deal would combine Tapestry brands such as Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors. This merger would make them more competitive compared to their European rivals, namely LVMH, leader behind Louis Vuitton, Dior, Fendi and Givenchy, and Kering, owner of Gucci, Balenciaga and Saint Laurent.

In a statement to the Washington Post, Tapestry said the FTC “fundamentally misunderstands both the market and how consumers shop” and that both companies operate in an “extremely competitive and highly fragmented industry alongside hundreds from rival brands, including well-established brands. players and new entrants.

“We have full confidence in the merits and pro-competitive nature of this transaction,” the statement said. “This will provide significant benefits to the combined company’s customers, employees, partners and shareholders in the United States and around the world. »

The acquisition would Tapestry to expand its global reach and introduce the company to a premium segment of the fashion industry. Since LVMH and Kering began consolidating their luxury rivals into a single holding company in the 1990s, the American fashion industry has struggled to produce a rival that matches its rivals. the kind of high-end houses that produce four-figure handbags and beauty products. (And the kind of billionaires: Bernard Arnault, chairman and CEO of LVMH, with a net worth of $218. billion, is the richest person in the world, according to the Bloomberg Billionaire Index.)

The brand combination “creates a powerful new global luxury house, unlocking a unique opportunity to drive increased value for our consumers, employees, communities and shareholders across the world,” said Joanne Crevoiserat, chief executive officer of Tapestry. , in a press release announcing the agreement.

Although antitrust regulators in Europe and Japan approved the merger last week, the FTC’s decision to pursue the case means it thinks U.S. consumers will fare differently, said Jennifer Lada, an antitrust lawyer. at Holland & Knight.

“There is general concern that the merged companies will be able to raise their prices,” Lada said. If the answer is yes, then the FTC must consider whether consumers will have a “reasonable substitute” if they are unable or unwilling to pay a higher price.

The FTC said the merger would give Tapestry a “dominant share of the ‘accessible luxury’ handbag market”, undermining the consumer benefits of companies competing on “prices, discounts and promotions, innovation , design, marketing and advertising.

Employees would also lose out on wages and benefits, according to the FTC.

The global luxury retail market boomed during the pandemic, reaching a market size of $462.7 billion in 2023, according to Global Data. Today, that trend is slowing as consumers grapple with inflation and high interest rates. Spending in this category fell 12 percent in March compared to the same period last year, according to a Bank of America analyst report.

In its most recent quarter ended Dec. 30, Capri reported that its revenue fell 5.6% year-over-year to $1.43 billion. Versace alone saw a decline of almost 9 percent. Tapestry fared better, with revenue growing 3 percent to $2.1 billion, largely because Coach is a popular brand for Christmas gifts, analysts say.

Typically, a conglomerate helps ensure that a fashion brand can endure if its eponymous designer retires or dies – a major source of anxiety for any brand with a famous founder. But it also provides the shared resources needed to grow businesses into global empires.

“In a market where big players have become so dominant… it really gives (brands) an advantage to be bigger,” said Imran Amed, founder and CEO of The Business of Fashion. For smaller groups, “this puts them at a disadvantage when competing for talent, store space deals and advertising contracts.” These are things that tend to be shared” in fashion conglomerates.

It is not common for antitrust regulators to weigh in on mergers in the fashion industry. But the commission’s decision to intervene with Tapestry and Capri shows how “we generally see greater scrutiny of mergers and potential anticompetitive behavior from (federal) regulators,” Lada said.

The FTC’s lawsuit represents the Biden administration’s latest effort to crack down on megamergers. In March, federal regulators filed suit to block the merger of supermarket giants Kroger and Albertsons, a union that regulators said would eliminate competition and threaten consumers’ access to affordable groceries. Earlier this year, a federal judge blocked JetBlue Airways’ $3.8 billion consolidation with Spirit Airlines. The FTC also took aim at Microsoft’s roughly $69 billion bid for video game company Activision Blizzard.