The Federal Trade Commission filed a lawsuit Monday seeking to block Tapestry's $8.5 billion acquisition of Capri, the hit fashion affiliate of Coach, Kate Spade, Michael Kors and Versace.
The lawsuit is an unusual move by the agency to prevent it from doing business with the fashion industry, given that the industry does not suffer from a lack of competition. In her nearly three years as FTC chair, Lina Khan has made it a priority to challenge the power of big business beyond her industry. The agency moved to block the Kroger and Albertsons supermarket merger, Meta's acquisition of virtual reality startup Within and Microsoft's acquisition of gaming giant Activision.
Results have been mixed, with the FTC failing to block the Microsoft deal and Meta acquisition, both of which closed last year.
“With the goal of becoming a serial acquirer, Tapestry is seeking to acquire Capri to further strengthen its hold on the fashion industry,” FTC Director of Competition Henry Liu said in a statement.
At the heart of F.TC's concerns is “accessible luxury” accessories. This is an industry term for inexpensive products sold by Coach, Kate Spade, and Michael Kors. The agency said tens of millions of Americans could end up paying more for these products because the combined company would have no incentive to compete on price.
“This agreement threatens to deprive consumers of competition for affordable handbags, while hourly workers will lose out on the benefits of higher wages and more favorable work conditions,” Liu said. Stated.
Michael Kors' classic bags from the Capri brand, such as the Marilyn Medium Logo Tote Bag, cost $228. Tapestry's similar Coach Willow tote bag costs $350.
“They don't understand how today's consumers shop, and they don't understand the dynamics of a market with no barriers to entry and a constant influx of new competitors. “It's very clear that this is the case,” said Tapestry CEO Joan Crevoissera. In an interview on Monday.
Crevoisserat added that consumers can purchase the bags at various retailers and on a number of websites. “If you type in 'black tote,' you'll see thousands of options and hundreds of brands at every price point,” she says.
He added that Tapestry remains focused on closing the deal this year and is prepared to defend it in court.
Capri said in a separate statement that he also disagrees with the FTC's move and plans to defend the agreement in court. The company said Americans have hundreds of options for where they can buy handbags.
“The market realities that the government's challenge ignores overwhelmingly demonstrate that this transaction will not limit, reduce, or suppress competition,” the statement said.
The fashion partnership, announced in August, is to create an American luxury conglomerate aimed at competing with European powerhouses like Louis Vuitton parent LVMH and Gucci owner Kering. become. However, it pales in comparison in terms of scale. Based on 2023 numbers, Capri, which owns Versace and Jimmy Choo in addition to Michael Kors, and Tapestry, which owns Kate Spade, Stuart Weitzman and Coach, are collectively worth about $12 billion. have. Revenue. LVMH's sales last year were 86.2 billion euros (about $92.2 billion).
The luxury goods market has seen weak sales, benefiting from a boost from the pandemic as shoppers spent more on handbags and other accessories. Capri announced in February that quarterly sales fell 5.6%. That same month, Tapestry announced record earnings for the quarter after a strong holiday.
The FTC has been scrutinizing this transaction for months. Even though regulators in the European Union and Japan have approved it. Traders are increasingly betting on the plan's chances of success, with Capri's shares down 25 percent this year, while Tapestry's shares are up 6 percent. (Typically, the target's stock goes up and the buyer's stock goes down.)
The FTC said that based on documents prepared by Tapestry, the Capri acquisition is unlikely to be the last and the deal could provide leverage for future deals.
“This is a transaction that makes sense for Tapestry,” Crevoissera said. “This is a deal that we are focused on.”