The U.S. Federal Trade Commission (FTC) has taken legal action to block the proposed $8.5 billion acquisition of Capri Holdings by Tapestry, the parent company of Coach and Kate Spade. This merger would have brought together six well-known fashion brands under a single umbrella: Tapestry’s Coach, Kate Spade, and Stuart Weitzman, and Capri’s Versace, Jimmy Choo, and Michael Kors.
The FTC contends that the combined entity would stifle competition in the luxury retail sector, resulting in higher prices and diminished choices for consumers. Tapestry and Capri currently compete across various product categories, including clothing, accessories, and footwear. The merger, according to the FTC, would eliminate this competition, potentially leading to a reduction in quality and innovation.
Furthermore, the FTC expresses concern that the deal could result in negative consequences for employees. By consolidating these brands, the newly formed company could potentially reduce its workforce or decrease wages, thereby harming lower-level workers.
Tapestry, in response, maintains that the FTC misunderstands the industry and consumer behavior. The company asserts that today’s shoppers frequently purchase across brands and price points, necessitating a broader portfolio to meet their diverse needs. Tapestry emphasizes that it faces competitive pressures from both lower-priced and higher-end brands and that the acquisition would not diminish competition within the industry.
The company plans to challenge the FTC’s lawsuit in court and remains committed to completing the transaction in 2024. It had previously obtained regulatory approvals in Europe and Japan but was awaiting the United States’ go-ahead.
Tapestry’s acquisition of Capri was driven by the desire to expand its global reach and cater to a wider customer base. However, Tapestry and Capri have faced challenges in recent times due to changing consumer spending patterns. Capri has been particularly vulnerable due to its reliance on department stores and wholesale retailers.
Shares of Tapestry have outperformed those of Capri in 2023, indicating investor confidence in the former’s strategy of focusing on retail and brand appeal rather than discounting.
This news is subject to further developments, and we will provide updates as they become available.
