In 2023, Tapestry and Capri Holdings announced an $8.5 billion deal in which Tapestry would acquire Capri Holdings, merging their brands. Tapestry is a fashion holding company that currently owns Coach, Kate Spade, and Stuart Weitzman. The deal would combine Capri’s brands, Michael Kors, Jimmy Choo, and Versace with Tapestry’s brands which would essentially create an American fashion powerhouse. The Federal Trade Commission moved to block the merger by filing an administrative complaint for a preliminary injunction on the basis that the merger would block competition in the affordable luxury handbag industry. The case is currently being argued in front of the administrative court.
How did Tapestry respond?
Tapestry is arguing that there is no anti-competitive behavior because they do not plan to merge the brands, change prices or change wages for laborers. Tapestry and Capri Holdings have stated that the goal of the merger was to strengthen the brands, and try to bring Capri’s brands into the lifestyle space similar to the way that Tapestry made Kate Spade into a “lifestyle brand.” Additionally, Tapestry had planned to rebrand Michael Kors, similar to Tapestry’s rebrand of Coach to help the American brands compete against the European fashion powerhouses.
Majority of the debate has centered around the definition of an accessible luxury handbag. The brands compete in several additional areas, including shoes, women’s clothing and accessories, but the FTC’s complaint specified that the merger would reduce competition in affordable luxury handbags. Tapestry argued that this definition was too narrow and that the FTC was dividing women’s fashion into unrealistic and unclear categories. Consumers do not view handbags in the categories of “accessible luxury” or “contemporary luxury,” so it was unreasonable to use these categories. Additionally, the FTC used measures of competition that did not apply to the fashion industry, by relying on pricing and product variety. While these are important factors in other industries, Tapestry responded that the fashion market is hypercompetitive and driven by “brand heat,” and consumer interest and connection to a brand.
What will happen if the court grants a preliminary injunction?
If the court issues a preliminary injunction blocking the merger, then the deal will be paused until a full administrative trial is completed. A preliminary injunction will likely end the deal and set a precedent for blocking fashion mergers in the future. The companies believe that blocking the merger would also be detrimental to the Michael Kors brand, and harmful to American fashion companies in the market in general. Luxury fashion companies already face fierce competition from affordable online sellers such as Amazon and Shein, and are constantly fighting counterfeits sold online. The merger could give these brands a chance to become more competitive in the market again, while blocking it could be harmful to the future of the brands.
