Challenge to Fashion Merger Shows a New Antitrust Philosophy in Action

This story is part of a Prospect series called Rollups, looking at obscure markets that have been rolled up by under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.

The Federal Trade Commission is working to prevent every store in a moderately upscale Southern California mall from having the same owner. More specifically, it wants to prevent the workers who staff those stores from enduring lower wages and benefits.

Those are some of the primary stakes in a merger challenge to a proposed $8.5 billion acquisition of Capri Holdings by Tapestry, Inc. Few would recognize these two parent companies, but you probably know their associated brands: Versace, Jimmy Choo, and Michael Kors are part of Capri, while Kate Spade, Coach, and Stuart Weitzman are in the Tapestry empire. All would come under the same corporate owner if the deal were to go through.

That would begin to realize a dream of Tapestry’s owners, who have spent the past decade rolling up a particular segment of the fashion industry. The prospect of another U.S. monopoly was enough for all five FTC commissioners—including the two new Republicans, who were just brought aboard in the last month—to vote to block the merger.

The fact that this bipartisan group of law enforcers has foregrounded worker harms as a reason to block an emerging monopoly shows how far we have moved away from the dominant lens through which mergers have been judged for the past several decades, known as the consumer welfare standard. I attended a conference on antitrust issues last week at the University of Chicago, and amid talk of economic concentration’s impact on productivity, innovation, and democratic liberty, the consumer welfare standard really did not come up at all. The FTC wants to prevent price appreciation and a reduction of choice in this market, but those are not the only things it’s concerned with. Those changing preoccupations comprise a quiet revolution in competition policy.

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You may think you have a number of high-fashion choices, but a peek under the hood shows rampant consolidation. Right before Joe Biden took office, LVMH, a French conglomerate that had already brought together Louis Vuitton, Fendi, Christian Dior, Givenchy, Marc Jacobs, Stella McCartney, Loewe, Sephora, TAG Heuer, Bulgari, and several wine and spirits companies (the MH in LVMH stands for Moët and Hennessy), scooped up Tiffany & Co. A second French conglomerate, Kering, owns Gucci, Balenciaga, Bottega Veneta, Yves Saint Laurent, Creed, and Alexander McQueen. The two behemoths control most of the “European luxury” market for high-end fashion.

Tapestry has set its sights one tick down at the “affordable” or “accessible” luxury space, a term that sounds silly but describes a definitive market segment, invented by Coach, which Tapestry invokes in its earnings calls and financial disclosures. Kate Spade, Coach, and Michael Kors handbags are well made but not as expensive as most LVMH and Kering offerings, thereby making high-quality handbags affordable to millions of middle-class customers. They are also often discounted around major shopping events like Black Friday, unlike European luxury brands that are always offered at full price.

The FTC, in its public complaint, redacted references to the share of affordable luxury handbags that Tapestry would hold after the deal, but The Wall Street Journal cited a 2022 report estimating a 53 percent market share just for Coach and Michael Kors in that segment. Competitors like Rebecca Minkoff are quoted in the complaint acknowledging the difficulty of competing in such a locked-up market.

According to the complaint, Tapestry and Capri brands Coach, Kate Spade, and Michael Kors “have a laser-like focus on each other, continuously monitoring each other’s ‘accessible luxury’ handbag brands from look and feel to pricing and performance, and then using that information to inform their strategic deliberations and actions.” This affects prices and promotions, but also innovation, design, and number of stores. Consumers benefit, because when prices drop, promotions are released, or design steps up on one brand, the other acts accordingly. If they all have the same owner, that rivalry goes away. So do the price wars.

President Biden’s antitrust agencies have become much more comfortable in wielding labor theories of harm.

If the companies merge, customers will likely pay more for less, and according to the FTC, Tapestry has increased profitability over the past decade by limiting wholesale sales at places like TJ Maxx and Ross, where discounts are common. Michael Kors, on the other hand, has actually increased wholesale and discounting to undercut rivals on price. The deal documents indicate that Michael Kors’s discount strategy would be reversed, leading to higher prices for accessible luxury handbags.

What’s interesting is that the complaint doesn’t stop there, as it might have during the past 40 years of competition policy. The combined company would have 33,000 employees worldwide, and going back to my hypothetical moderately upscale Southern California mall, they usually work across the way from one another. The complaint describes a scenario in 2021, where Michael Kors matched $15-an-hour minimum wages at Tapestry brand stores within a couple of months. In a merger, neither side will have to match the other’s wages or working conditions. And employees will lack the bargaining power of being able to take a better offer on the other side of the mall.

President Biden’s antitrust agencies have become much more comfortable in wielding these labor theories of harm. The Justice Department’s Antitrust Division won a case blocking the Penguin Random House/Simon & Schuster merger over reduced advances to authors for their labor. More recently, the FTC’s challenge to the grocery merger between Kroger and Albertsons highlighted potential difficulties for workers to win concessions in collective bargaining.

The complaint against Tapestry adds another possible hurdle. The FTC cites internal documents showing that executives envision the Capri purchase as the beginning of a larger set of deals, consistent with the serial acquisitions by the company over the past decade. While much smaller than LVMH, Tapestry is demonstrably looking to them as a model, the FTC claims. That strategy, the complaint intimates, could violate Section 7 of the Clayton Act, which prevents acquisitions where the effects “may be substantially to lessen competition, or to tend to create a monopoly.”

Attacking a rollup strategy is also an emerging trend for antitrust enforcers. The FTC has a case against private equity firm Welsh Carson over its serial acquisitions of anesthesia practices in Texas.

Obviously, Tapestry disagrees with all of this. Its chief executive, Joanne Crevoiserat, made the rounds Monday when the challenge was announced, claiming that the market has fierce competition, and that Tapestry’s edge comes from superior quality, not higher markups.

What’s different here compared to the past is that the FTC is looking at a spectrum of harms rather than just whether customers will pay more for a handbag. The public, in this new view of antitrust, is composed not just of consumers, but of workers and entrepreneurs and partners. We are not interested only in the cost but the quality and the experience. The full range of stakeholders are contemplated now, in a way that we just didn’t see in previous administrations.

That, more than anything, is the difference between antitrust enforcement today and in the past. And if it works, you might just be able to stretch for that Kate Spade bag someday, or maybe one from a new designer that’s even better. And the person selling it to you will be able to make their rent.