Tapestry x Capri merger blocked: What does this mean for the ‘accessible’ fashion market?

On Thursday, October 24, a US judge opted to block Tapestry’s attempt to buy competitor Capri Holdings, with “loss of head-to-head competition” cited as the reasoning. The case, first brought forward in a lawsuit by the Federal Trade Commission (FTC), became high profile due to its involvement of notable executives and the fact that the merger had already gained approval in other regions.

The question now is how such a decision could impact the future of mergers and acquisitions in the premium and luxury sector. Tapestry and Capri have also confirmed an intention to file a notice of appeal to the US Court of Appeals for the Second Circuit, meaning the story is yet to come to a close.

So, what happened exactly?

Back in August 2023, luxury fashion group Tapestry, the parent company of Coach, Kate Spade and Stuart Weitzman, had made an agreement to acquire its direct competitor, Capri Holdings Limited, the owner of Michael Kors, Versace and Jimmy Choo. The deal was valued at approximately 8.5 billion dollars and intended to establish a “powerful global house of iconic luxury and fashion brands” that would operate across 75 countries.

The proposed merger received approval in both Japan and the European Union, a promising start for the duo. Tapestry CEO, Joanne Crevoiserat, continued to stand by the strategy, reaffirming that the coming together of the six labels would unlock “a unique opportunity to drive enhanced value for our consumers, employees, communities and shareholders”. Initially, the deal was expected to close by the end of 2024, yet the firms were required to wait for US authorities to grant antitrust approval.

Such approval never came, however. Following a request by the FTC to receive more information on the planned merger, the organisation ultimately sued Tapestry to block the acquisition. Tapestry, naturally, disproved of the FTC’s decision, stating at the time that the agency “fundamentally misunderstands both the marketplace and the way consumers shop”. Despite Tapestry’s arguments, a court date was set for September 9, leaving the decision in limbo for a year.

What were the concerns on both sides?

The high profile case, which ran until September 30, garnered attention from across the industry, particularly as top executives from the two firms, including designer Michael Kors, himself, descended on the New York courtroom to argue their cases.

From the perspective of the FTC: Market competition and employee impact

The core argument of the FTC was that competition between Coach, Kate Spade and Michael Kors could be compromised by the acquisition, harming both consumers and employees in the way of pricing, marketing, retail sales and labour–potentially impacting wages–among other things. If joined, the companies could hold a combined market share over the 30 percent threshold outlined in the 2023 Merger Guidelines.

The FTC further alleged there was evidence that Tapestry could raise prices post-merger through a reduction of discounting and lessening wholesale, akin to a strategy it had supposedly used upon its acquisition of Kate Spade in 2017.

Concern over a ‘serial’ acquisition strategy was also touched upon, with the FTC believing that Tapestry garnering such power in the US accessible luxury handbag market could be leveraged to make even more acquisitions, making it harder for small businesses or new entrants.

From the perspective of Tapestry and Capri: Waning demand and financial challenges

Much of Tapestry’s arguments centred on the “competitive pressures” from both lower and higher-priced products, a “reality” the FTC had “chosen to ignore” in today’s “dynamic and expanding 200 billion dollar global luxury industry”, the company said in a statement.

Upon taking the stand, designer Michael Kors also underlined this sentiment while admitting that his own brand had fallen in favour among consumers. “I think we’ve reached the point of brand fatigue,” he said addressing the court.

Capri and Tapestry further stated that they intended to run the brands with “separate identities and structures”, thus ensuring that they would still compete with each other on price.

The question of what ‘accessible luxury’ is

On both sides, representatives attempted to define the term “accessible luxury”, with the overarching premise being that the term refers to products, in this case handbags, that sit between mass-market and true luxury. Distinguishing characteristics highlighted by the complaint include distinctive customers, quality materials, high frequency discounting and specific production facilities. Tapestry, however, argued that the FTC’s perspective of this market was somewhat outdated, particularly in light of waning demand from consumers, an increasing number of whom no longer favour brands that fall into the middle category.

What were the results and why?

Judge Jennifer Rochon of the Southern District of New York outlined in a 169-page decision that the proposed merger would likely “lessen competition in the market for accessible-luxury handbags, in violation of Section 7 of the Clayton Act”. This part of the Act determines that the impact of an acquisition “may be substantially to lessen competition, or to tend to create a monopoly”. Rochon also expressed that the suggestion the brands would continue to operate under their own identities was “unenforceable” and they would continue to “compete less with one another than they would under separate ownership”. Rochon thus opted to grant the FTC’s motion for a preliminary injunction.

A statement from Tapestry called the judge’s decision “disappointing” and “incorrect on the law”. The company said that itself and Capri operated in “an industry that is intensely competitive and dynamic”, as well as “fragmented among both established players and new entrants”, thus causing “competitive pressure from both lower- and higher-priced products”. At the FTC, however, the move was hailed as a “victory” by Henry Liu, director of the bureau of competition, who said in a statement to The Washington Post that the duo would “continue to engage in head-to-head competition to the benefit of the American public”.

How could this impact the wider premium world?

From the perspective of Shermin Lakha, founder of US-based law firm LVLUP Legal, P.C., the judge’s decision could prevent more mergers in this field from occurring. Speaking to FashionUnited following the ruling, Lakha said: “Usually, the FTC doesn’t file claims like this, so it was really interesting that this occurred. A lot of it has to do with the timing of the election and inflation prices, because the Biden administration really wants to make sure that there isn’t an increase in inflation prices and loss of jobs, which could have a greater impact.”

The situation itself is a costly one for both Tapestry and Capri, even beyond the legal fees, which Tapestry had agreed to pay as reimbursement to Capri if the merger failed, with the company possibly forking out between 30 to 50 million dollars. In return, Capri had confirmed that if it walked away from the deal, it would pay a breakup fee of 240 million dollars, a filing said.

Immediate impact, meanwhile, was also seen following the ruling. While Tapestry’s stock surged 10 percent after the order was filed, Capri’s took a sharp 50 percent tumble. Lakha added: “It affects the stock prices of both companies if the merger doesn't occur. It shows that it also impacts the pricing of the products. The goal was hopefully to help elevate some of the brands under Tapestry, and increase prices all around as the parties would not have to compete against one another anymore. Not having to do discounts in order to compete means they'd all be making money no matter what.”

Capri in a challenging period

In this regard, the merger would have been somewhat of a saviour for Capri, which has been struggling in the face of dampening demand and a challenging retail environment. For the first quarter of fiscal year 2025, the company reported a 13.2 percent drop in revenue compared to the same period last year, amounting to 1.07 billion dollars. While a drop in revenue was seen across all regions, it was particularly stark in EMEA. Versace’s sales in the region dropped 22 percent, while Michael Kors’ fell 21 percent. This was then followed by Jimmy Choo’s, for which EMEA sales saw low-single-digit deficits.

“[Capri] needed to complete this merger to compete with European brands that have more of a global footprint,” Lakha noted. “There have been a few mergers blocked internationally, hoping to help reduce inflation. These mergers were not blocked for companies like LVMH, however, but because of the term “accessible luxury” and the price point that these products are at, if Tapestry’s acquisition was permitted, there could be concern about a larger variety of brands coming under the fold.”

In the event of an appeal…

The story of this industry-changing merger is yet to come to an end, however. Hours after the judge’s decision was made known, Tapestry and Capri confirmed they intended to jointly file a notice of appeal to the US Court of Appeals for the Second Circuit, aligning with the terms of their merger agreement. For Lakha, there is a definite possibility of an appeal, yet a judge is still likely to question the wider impact of what such a merger could result in.

This particularly calls into question the compact size of the fashion market itself, with only around 15 holding companies or privately-owned companies operating in the sector, setting the scene for potential antitrust competition violations. “I think [Tapestry and Capri] have to appeal, but I do think a judge would look at this and say, if I do overturn what could be the bigger impact,” Lakha said. “The claimant was talking about “accessibility” to the luxury market. In my opinion, that’s a little bit of an oxymoron, because the luxury market is something that isn’t necessarily accessible and that’s what makes the products ‘luxury’, per se. People always have access to handbags: you can purchase a bag on Amazon or at Jimmy Choo, but both are physical bags. What makes the difference is the intellectual property, the structure, the creativity behind the brand. People are really purchasing into the brand.”

In the event of an appeal, Lakha said: “On the legal grounds, there are so many different brands out there. And by these six coming together, this doesn't create a financial trust competition situation. But I think that the judge would probably continue to hold the ruling because of the landslide effect of what could occur. If this gets overturned and then mergers start occurring, it could really come to maybe just a handful of holding or privately owned companies. And then yes, it would create a dysphoria between the luxury market and the accessibility market.”