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The FTC Lays Out Its Case Against Tapestry’s $8.5B Buyout of Capri

Fashion has entered a new dealmaking phase.

While antitrust regulators have always been a kind of distant concern as two big companies sought to combine, there were rarely any serious worries that Washington would step in and try to block a buyout.

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But after years of consolidation in fashion, that has now changed with the Federal Trade Commission’s suit to nix Tapestry Inc.’s $8.5 billion acquisition of Capri Holdings.

The complicated process of deciding whether or not a company is leaning toward monopoly requires that the FTC look to see if a company dominates the market it operates in. At least in fashion, the thinking has long been that there is enough competition to protect consumers.

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As Joanne Crevoiserat, chief executive officer of Tapestry and the deal’s architect, told WWD on Monday: “Consumers are fully in charge here and if we don’t deliver innovation that they value, they have other choices.”

Joanne C. Crevoiserat
Joanne C. Crevoiserat

After poring over the details of the deal and internal documents from both companies, regulators are arguing otherwise. And they said they see danger in bringing together Tapestry’s Coach, Kate Spade and Stuart Weitzman brands with Capri’s portfolio of Michael Kors, Versace and Jimmy Choo.

“With Tapestry’s acquisition of Michael Kors, the closest competitor of Coach and Kate Spade, consumers will lose the benefit of head-to-head competition on price, discounts and promotions, innovation, design, marketing and employee wages and workplace benefits,” the FTC said in its suit, filed in Manhattan federal court.

It’s a suit that hits right to the heart of the idea of “accessible luxury,” a category that Coach is given credit for inventing.

“Today both companies compete on everything from clothing to eyewear to shoes,” the suit said. “But where Coach, Kate Spade and Michael Kors most fiercely compete, and where they boast eye-popping market shares, are in handbags — specifically, ‘accessible luxury’ handbags — where the parties offer high-quality products purchased by tens of millions of Americans.”

The suit also puts industry consolidation under the microscope and under the scrutiny of new antitrust regulations that were established last year.

“The proposed acquisition is also part of Tapestry’s pattern and strategy of serial acquisitions,” the FTC said. “The merger guidelines state that a ‘firm that engages in an anticompetitive pattern or strategy of multiple acquisitions in the same or related business lines may violate Section 7.’ The proposed acquisition builds on a deliberative, decade-long M&A strategy by Tapestry — and is just one in a string of acquisitions for Tapestry to achieve its goal to become the major American fashion conglomerate.”

The public version of the suit was redacted, giving only a glimpse and some of its argument. A line in the first paragraph of the case, for instance, reads like this: “In its own words, the goal of Tapestry’s M&A strategy is to [redacted] and [redacted] the ‘accessible luxury’ space in which Coach, Kate Spade, and Michael Kors compete.”

The blanks will no doubt be filled in in court, where Crevoiserat has vowed to fight for the deal.

It’s a case that promises a deep dive into the core of the American fashion business, using the new FTC guidelines to test the norms and assumptions the industry has operated under for decades.

“The proposed acquisition will eliminate fierce competition between Coach, Kate Spade and Michael Kors,” the suit said. “A merger is unlawful if it substantially lessens competition between the parties independent of the analysis of market shares, as recognized by the 2023 U.S. Department of Justice and FTC Merger Guidelines. Tens of millions of consumers are the beneficiaries of an intense, long-standing rivalry between Coach, Michael Kors and Kate Spade that would be squelched as a result of the proposed acquisition. This fierce head-to-head competition, which is monitored by the highest levels of Tapestry and Capri, comes in many forms — prices, discounts, promotions, innovation, design, marketing, and brick-and-mortar store experiences.”

Crevoiserat has been vocal and said the deal is “pro-consumer” and that the market is kinetic, with new brands popping up all the time. “There are new entrants every day that come into the market,” she said. “Some celebrity wears a bag on an evening, or a really cool Brooklyn designer creates a bag. There are no barriers to entry.”

Certainly there’s no shortage of people vying to become the next big thing in fashion — and every sale to a new brand is a sale one of the established brands might have made — but it is still difficult and time-consuming to build a brand to the scale of a Coach or Michael Kors.

And the FTC has a poster child — Rebecca Minkoff.

“The story of Rebecca Minkoff embodies the struggle of an ‘accessible luxury’ handbag entrant,” the suit said. “Ms. Minkoff launched her brand in 2001, and the eponymous founder has spoken openly about the significant challenges she faced in scaling her company. Ms. Minkoff ultimately sold her company to Los Angeles-based diversified apparel company Sunrise Brands in February 2022 for a price estimated between $13-19 million.”

According to the FTC’s suit: “New entry will not be timely, likely, or sufficient to counteract the anticompetitive effects of the proposed acquisition. Even assuming that a new potential entrant could make a quick splash, scaling its sales and presence to replace the loss of competition between the parties would take many years. It would require, among other things, building a strong brand, a heavy brick-and-mortar presence, sizable investments in marketing and manufacturing, access to consumer data rivaling that of the parties, to name a few — all of which is extremely expensive and takes time.”

Now the clock is ticking on Tapestry + Capri, which Crevoiserat still wants to close this calendar year.

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