Tapestry-Capri deal would squash handbag competition, says FTC

Tapestry’s $8.5 billion deal to buy Capri is in jeopardy after the Federal Trade Commission (FTC) sued on Monday to block the merger, in an antitrust decision that hinges on the accessible handbag.

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“If allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands. It would also give Tapestry a dominant share of the ‘accessible luxury’ handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price,” reads the FTC statement. The deal would bring together Coach and Michael Kors, both known for their affordable handbags, as well as Kate Spade, Stuart Weitzman, Jimmy Choo and Versace. The FTC argues that the deal would further limit competition across “price, discounts and promotions; innovation, design, marketing, and advertising”.

Tapestry announced in August that it intended to acquire Capri, in a deal that would value the combined companies at $12 billion. The New York Times reported last week that the FTC was considering a lawsuit to block the deal, which had been widely supported by industry spectators as a clear win for both companies. The merger was expected to close by the end of this year, and has already been approved by the EU and Japan, leaving the FTC as the last regulator yet to confirm the merger. Tapestry intends to fight the decision.

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“There is no question that this is a pro-competitive, pro-consumer deal and that the FTC fundamentally misunderstands both the marketplace and the way in which consumers shop. Tapestry and Capri operate in an intensely competitive and highly fragmented industry alongside hundreds of rival brands, including both established players and new entrants,” Tapestry’s statement reads.

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Antitrust legislation is rare in fashion, where the barrier to entry is low, especially in the e-commerce age. Up-and-coming direct-to-consumer brands have been able to challenge incumbents with the right Instagram marketing strategy and a Shopify store. A Tapestry and Capri merger would also better position both companies to compete against Europe’s luxury conglomerates, LVMH, Kering and Richemont — though the company would still be worth only a small fraction of the European giants’ valuations. The US has yet to put forward a conglomerate of its own with a similar weight.

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The decision has taken some analysts by surprise, simply because of a lack of clear precedent. “This is rare for the world of retail,” says Jessica Ramírez, retail analyst at Jane Hali and Associates, who notes that Coach embarked on a brand turnaround eight years ago because upstart labels were winning market share in the accessible handbag space. “There are so many brands that have come up in the past years — DTC brands, apparel brands — that have opened up growth through handbags at the affordable luxury price point.”

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So-called accessible luxury has also been squeezed between high-end luxury offerings and fast fashion, which Tapestry addressed in its statement: “The bottom line is that Tapestry and Capri face competitive pressures from both lower and higher-priced products. In bringing this case, the FTC has chosen to ignore the reality of today’s dynamic and expanding $200 billion global luxury industry.”

Capri’s statement similarly stresses the vast amount of competition from all sides. “Consumers have hundreds of handbag choices at every price point across all channels, and barriers to entry are low,” Capri’s statement says.

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The deal could still go through. The FTC, under chair Lina Khan, has sued to block multiple corporate deals in recent years. Some managed to be completed: Microsoft’s acquisition of gaming company Activision and Meta’s acquisition of virtual reality company Within. In the grocery space, the FTC sued in February to block the merger of US chains Kroger and Albertsons, a $25 billion deal.

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Ramírez says the prolonged process could potentially give Tapestry the chance to renegotiate the terms of the deal. Capri’s slumping stocks in recent weeks — in part a response to the FTC’s scrutiny — raised concerns over the value of the acquisition cost.