The Federal Trade Commission on Monday filed a lawsuit to block Tapestry’s $8.5 billion acquisition of Capri, a successful fashion alliance that would bring together Coach, Kate Spade, Michael Kors and Versace.
The lawsuit is a rare move by the agency to block a fashion deal, given that the industry does not suffer from a lack of competition. In her nearly three years as chair of the FTC, Lina Khan has made it a priority to take on the power of big business in all sectors. The agency has moved to block the supermarket merger between Kroger and Albertsons, Meta’s acquisition of virtual reality startup Within and Microsoft’s bid for gaming giant Activision.
The results have been mixed: The FTC failed to block the Microsoft deal and the Meta acquisition, which closed last year.
“Aiming to become a serial acquirer, Tapestry seeks to acquire Capri to further solidify its position in the fashion industry,” Henry Liu, director of the FTC’s Bureau of Competition, said in a statement.
At the center of the F.TC’s concerns are “accessible luxury” accessories, an industry term for less expensive products sold by Coach, Kate Spade and Michael Kors. The agency said tens of millions of Americans could end up paying more for these items because the combined company would no longer have incentives to compete on price.
“This deal threatens to deprive consumers of competition for affordable handbags, while hourly workers risk losing the benefits of higher wages and more favorable working conditions,” Liu said.
A classic bag from Michael Kors, a Capri brand, such as a medium tote bag with the Marilyn logo, costs $228. The similar Coach Willow tote bag from Tapestry is $350.
“It is quite clear to us that they do not understand how consumers shop today and they do not understand the dynamics of a market without barriers to entry, with a constant influx of new competitors,” said Joanne Crevoiserat, CEO of Tapestry. in an interview on Monday.
Crevoiserat added that consumers can purchase bags at different retailers and on numerous websites. “Type ‘black bag’ and you’ll see thousands of options and hundreds of brands at any price,” he said.
He added that Tapestry remained focused on closing the deal this year and was prepared to defend it in court.
Capri said in a separate statement that it also disagreed with the FTC’s action and planned to defend the deal in court. The company said Americans had hundreds of options for where to buy bags.
“Market realities, which the government ignores, overwhelmingly demonstrate that this transaction will not limit, reduce or restrict competition,” the statement said.
The fashion deal, announced in August, would create an American luxury conglomerate aimed at competing with European powerhouses such as Louis Vuitton parent LVMH and Kering, which owns Gucci. But it would pale in comparison to its size: according to 2023 figures, Capri, owner of Versace and Jimmy Choo in addition to Michael Kors, and Tapestry, owner of Kate Spade and Stuart Weitzman, in addition to Coach, together have around $12 billion. in profit. LVMH had revenue of 86.2 billion euros, or about $92.2 billion, last year.
The luxury market has seen slower sales after benefiting from the pandemic boost in shoppers’ spending on bags and other accessories. In February, Capri said its quarterly revenue had fallen 5.6 percent. That same month, Tapestry said it had posted record revenue for the quarter after a heavy holiday.
The FTC has been examining the deal for months, even when regulators in the European Union and Japan approved it. Traders have increasingly bet against the likelihood of it happening: Capri’s shares have fallen 25 percent this year, while Tapestry’s have gained 6 percent. (Typically, the shares of an acquisition target gain while the buyer’s shares fall.)
The FTC said that based on documents filed by Tapestry, its acquisition of Capri was not likely to be its last and that this deal could give it leverage for future deals.
“This is the deal that makes sense for Tapestry,” Crevoiserat said. “This is the transaction we are focused on.”