FTC sues to block luxury fashion merger of Tapestry and Capri Holdings

The deal would combine such Tapestry labels as Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors. That tie-up would make them more competitive with their European rivals, namely LVMH, the powerhouse behind Louis Vuitton, Dior, Fendi and Givenchy, and Kering, the owner of Gucci, Balenciaga and Saint Laurent.

In a statement to The Washington Post, Tapestry said the FTC “fundamentally misunderstands both the marketplace and the way in which consumers shop” and that the two companies operate in an “intensely competitive and highly fragmented industry alongside hundreds of rival brands, including both established players and new entrants.”

“We have full confidence in the merits and pro-competitive nature of this transaction,” the statement said. “It will bring significant benefits to the combined company’s customers, employees, partners, and shareholders in the U.S. and around the world.”

The acquisition would allow Tapestry to broaden its global reach and usher the company into a higher-end segment of the fashion industry. Since LVMH and Kering began assembling luxury rivals under single holding companies in the 1990s, the American fashion industry has struggled to produce a contender on a par with the kind of high-end legacy houses that churn out four-figure handbags and beauty products. (And the kind that mint billionaires: LVMH chairman and CEO Bernard Arnault, with a net worth of $218 billion, is the richest person in the world, according to the Bloomberg Billionaire Index.)

The combination of brands “creates a new powerful global luxury house, unlocking a unique opportunity to drive enhanced value for our consumers, employees, communities, and shareholders around the world,” Tapestry chief executive Joanne Crevoiserat said in a news release announcing the deal.

Though antitrust regulators in Europe and Japan approved the merger last week, the FTC’s decision to pursue the case means it believes American consumers will fare differently, said Jennifer Lada, an antitrust attorney at Holland & Knight.

“There’s a general concern of merged companies being able to raise prices,” Lada said. If the answer is yes, then the FTC has to consider if consumers will have a “reasonable substitute” if they aren’t able or willing to pay the higher price.

The FTC said the merger would give Tapestry a “dominant share of the ‘accessible luxury’ handbag market,” undermining consumers’ benefits of the companies competing on “price, discounts and promotions, innovation, design, marketing, and advertising.”

Employees would also lose out in terms of wages and benefits, according to the FTC.

The global luxury retail market saw a boom during the pandemic, hitting a market size of $462.7 billion in 2023, according to Global Data. Now, it’s slowing as consumers grapple with inflation and high interest rates. Spending in the category fell 12 percent in March compared to the same period last year, according to a Bank of America analyst report.

In its most recent quarter ending Dec. 30., Capri reported revenue slipped 5.6 percent year-over-year, to $1.43 billion. Versace alone saw an almost 9 percent decline. Tapestry faired better, with a 3 percent revenue growth to $2.1 billion, thanks in large part to Coach being a popular brand for holiday gifts, analysts said.

Typically, a conglomerate helps ensure that a fashion business brand is able to continue if its eponymous designer retires or dies — a major source of anxiety for any label with a celebrated founder. But it also provides the shared resources to expand the businesses into global empires.

“In a market where the big players have become so dominant … it just really puts [brands] at an advantage to be bigger,” said Imran Amed, the founder and CEO of The Business of Fashion. For the smaller groups, “it puts them at a disadvantage when they’re competing for talent, and for good deals on store space and for advertising deals. Those are the things that tend to be shared” in fashion conglomerates.

It’s not a regular occurrence for antitrust regulators to weigh in on fashion mergers. But the commission’s decision to intervene with Tapestry and Capri shows how “we’re seeing generally more scrutiny of mergers and possible anti-competitive behavior by [federal] regulators,” Lada said.

The FTC’s suit is the latest effort by the Biden administration to crack down on megamergers. In March, federal regulators filed suit to block the merger of supermarket giants Kroger and Albertsons, a union that regulators said would eliminate competition and threaten consumers’ access to affordable groceries. Earlier this year, a federal judge blocked JetBlue Airways’ $3.8 billion consolidation with Spirit Airlines. The FTC also went after Microsoft’s roughly $69 billion bid for video game company Activision Blizzard.