Preventing Monopoly – Fight Against Tapestry’s Capri Deal. Story by Eleonora de Gray, Editor-in-Chief of RUNWAY MAGAZINE.

The recent acquisition of Capri Holdings by Tapestry, Inc., a major event in the fashion industry, has faced a legal challenge from the U.S. Federal Trade Commission (FTC), raising concerns about its legitimacy. In August 2023, Tapestry, known for owning brands like Coach, Kate Spade, and Stuart Weitzman, announced plans to purchase Capri Holdings, the parent company of Michael Kors, Versace, and Jimmy Choo, in a transaction valued at $8.5 billion. This move aimed to create a global luxury powerhouse by consolidating these major fashion brands under one roof.

However, the FTC has filed a formal complaint in April 2024 against this transaction, arguing that it could harm competition, particularly in the market for “accessible luxury” handbags, which includes popular brands like Coach, Kate Spade, and Michael Kors. The Commission is concerned that by merging, Tapestry and Capri could gain too much control over the market, which may lead to higher prices, fewer choices, and reduced innovation for consumers.

The term “accessible luxury” refers to high-quality products that are priced more affordably than traditional luxury items, such as those from brands like Louis Vuitton or Chanel. This category is important because it appeals to middle- and working-class consumers who seek luxury but at more attainable price points. Tapestry and Capri’s brands dominate this space, competing fiercely against each other. For example, Coach, Kate Spade, and Michael Kors are key players in the handbag segment of this market.

The FTC believes that the merger would reduce competition between these brands, which has historically driven innovation, competitive pricing, and consumer benefits. In particular, the FTC argues that without this competition, the combined company could reduce discounts, increase prices, and offer fewer choices. The concern extends beyond just prices, as the merger could stifle creativity and reduce the variety of designs and products available to consumers.

One of the key points raised by the FTC is that the combined entity would hold an overwhelming share of the “accessible luxury” handbag market in the U.S., potentially exceeding 30%. This level of market control raises red flags about antitrust violations. To prevent potential harm to consumers, the FTC has filed for a temporary restraining order and a preliminary injunction to stop the merger from being finalized while the legal process unfolds.

In response, Capri Holdings and Tapestry have defended the merger, arguing that the fashion industry is highly competitive and dynamic. They contend that there are more than 150 brands that offer handbags in the same price range, providing ample competition to prevent any monopoly. Capri and Tapestry emphasize that Michael Kors, in particular, has seen a decline in sales in recent years, and the merger would help revitalize the brand by combining resources and expanding its reach globally, especially in Europe and Asia. They also highlight that seven other regulatory bodies, including the European Commission, have reviewed the merger and found no significant competitive issues.

Moreover, Capri’s legal team argues that the FTC’s case is built on an incorrect assumption that these brands are each other’s only competitors. They argue that the market for handbags is broader and includes many other brands, from lower-end to high-end, such as Gucci, Guess, and Zara, which all compete for the same consumers. The defense claims that the FTC’s focus on a narrow market definition inflates the impact of the merger.

The case is now in court, and a decision will determine whether the merger can proceed or if further steps need to be taken to ensure it does not harm competition. The outcome will likely have a significant impact not only on Tapestry and Capri but also on the future landscape of the global luxury fashion industry.

This legal battle highlights how the consolidation of major brands in any industry can raise concerns about competition, pricing, and consumer choice. For now, the fate of the Tapestry-Capri merger hangs in the balance, with the final verdict set to shape the future of the accessible luxury market.

U.S. Federal Trade Commission Complaint

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Some thoughts…

The legal battle over Tapestry’s acquisition of Capri Holdings highlights broader concerns in the luxury industry, especially when contrasted with the actions of LVMH, the world’s largest luxury group. Over the years, LVMH has aggressively expanded its portfolio. Unlike Tapestry’s acquisition attempt, these deals have faced minimal regulatory resistance. LVMH continues to dominate the high-end luxury market, often raising prices and controlling key market segments without significant challenges from regulators, and without consideration of the interests of the consumers.

LVMH’s vast scale has allowed it to exert significant influence over pricing, brand positioning, and global luxury trends. With minimal competition at its level, the group commands higher prices, which limits consumer choices in the luxury segment. Despite this, LVMH’s acquisitions rarely provoke the same regulatory scrutiny seen with smaller competitors like Tapestry, raising questions about how antitrust laws are applied across different levels of the luxury industry.

This disparity emphasizes the need for consistent oversight of acquisitions across the fashion and luxury sectors, ensuring that no conglomerate—whether it’s Tapestry or LVMH—can unfairly dominate the market at the expense of consumers. The outcome of the Tapestry case could set a precedent for how future luxury acquisitions are scrutinized, including potential challenges to LVMH’s growing dominance.