On Thursday, October 24, a US judge denied Tapestry’s attempt to acquire competitor Capri Holdings, citing “loss of head-to-head competition” as the reason. With the termination of Tapestry’s $8.5 billion deal to acquire Capri Holdings, the owner of Michael Kors is on its own to turn around the beleaguered brand. John D. Idol, the Company’s Chairman and Chief Executive Officer, said, “Given our Company’s performance over the past 18 months, we have recently started to implement a number of strategic initiatives to return our luxury houses to growth. Across Versace, Jimmy Choo and Michael Kors, we are focused on brand desirability through exciting communication, compelling product and omni-channel consumer experience. While our strategies are tailored uniquely for each brand, our overarching goals are similar.” CEO John Idol has a plan: restore balance to the product mix, invest in marketing, and offer more affordable options to customers.
The case, which began as a complaint filed by the Federal Trade Commission (FTC), drew attention due to the involvement of renowned executives and the fact that the merger had already been approved in other countries. The concern today is how such a decision will affect the future of mergers and acquisitions in the premium and luxury sectors.
Tapestry and Capri has been competing on a wide range of products, including shoes, eyewear, and apparel for a long time. Tapestry and Capri are most fiercely competing with each other in the “accessible luxury” handbag industry, primarily between Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand. Coach, Kate Spade, and Michael Kors keep a close eye on each other’s handbag brands to assess pricing and performance. They then utilize this data to decide on strategic choices, such as whether to increase or decrease handbag prices. According to FTC, due to the agreement, there would be no more intense head-to-head competition on a number of crucial factors, such as pricing, discounting, and design. Prices for Coach, Kade Spade, and Michael Kors products may increase for tens of millions of Americans. The FTC claims that Tapestry would outstrip all of its rivals in the “accessible luxury” handbag market if it were to purchase Capri.
So, what happened exactly?
In August 2023, the high-end fashion conglomerate Tapestry, which owns Coach, Kate Spade, and Stuart Weitzman, reached a deal to buy out its immediate rival, Capri Holdings Limited, which owns Versace, Michael Kors, and Jimmy Choo. The goal of the roughly 8.5 billion dollar purchase was to create a “powerful global house of iconic luxury and fashion brands” that would have operations in 75 different countries. Both Japan and the United States approved the proposed merger. The deal was initially anticipated to close by the end of 2024, but the companies had to wait for antitrust approval from US authorities. But such approval never arrived.
The organization eventually filed a lawsuit against Tapestry to stop the acquisition when the FTC requested additional information about the proposed merger. Naturally, Tapestry opposed the FTC’s ruling, claiming at the time that the organization “fundamentally misunderstands both the marketplace and the way consumers shop.” The issue remained in limbo for a year after a court date was set for September 9 in spite of Tapestry’s arguments. The high-profile case, which lasted until September 30, attracted interest from all throughout the industry, as key officials from the two corporations, including designer Michael Kors himself, flocked to the New York courthouse to present their claims.
The FTC’s main argument was that the merger may jeopardize competition among Coach, Kate Spade, and Michael Kors, which would hurt consumers and workers in a number of ways, including pricing, marketing, retail sales, and labor—possibly affecting wages. The combined market share of the two businesses may surpass the 30 percent barrier specified in the 2023 Merger Guidelines if they were to merge. The FTC expressed concern about a “serial” acquisition strategy, arguing that Tapestry’s dominance in the US accessible luxury handbag market may be used to make even more acquisitions, which would be more difficult for startups or small enterprises.
“With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry,” said Henry Liu, Director of the FTC’s Bureau of Competition. “This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions.”
Designer Michael Kors shared this sentiment when he took the stand, admitting that his own brand had lost popularity with consumers. “I think we’ve reached the point of brand fatigue,” he told the court. Capri and Tapestry also announced that they planned to operate the brands under “separate identities and structures,” assuring that they would continue to compete on price.
‘Accessible Luxury’ Definition Vague
Representatives from both sides attempted to define the word “accessible luxury,” with the overriding concept that the term refers to things, specifically handbags, that fall somewhere between mass-market and true luxury. The lawsuit highlights distinguishing qualities such as individual customers, superior materials, frequent discounts, and specific production facilities. Tapestry, on the other hand, contended that the FTC’s view of this market was somewhat out of date, particularly in light of diminishing customer demand, with an increasing number of people no longer preferring brands in the medium category.
