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The new American conglomerate: Why
Tapestry acquired Capri

The two groups have merged, forging a singular American accessible luxury conglomerate to rival the European giants. Will it work?

Published August, 10 2023

BY: Maliha Shoaib

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Tapestry and Capri Holdings are joining forces to create an American luxury conglomerate with combined annual revenues of more than $12 billion. It’s a bid to rival European giants LVMH and Kering by casting a wider net with more accessible brands. Can it work?

“While we all talk about the high luxury sector, we can’t forget the broad appeal of accessible luxury, which is a huge part of the business. And there hasn’t been a group that has covered the spectrum for accessible luxury,” says luxury consultant Robert Burke, of Robert Burke Associates (RBA). “To be able to take some of the expertise and learnings [from both companies] and put them together for a group completely makes sense — it’s a logical move and one that will probably end up successful.”

Under the $8.5 billion deal, which will close in 2024 subject to approval by regulators and Capri’s shareholders, Tapestry will continue to own Coach, Kate Spade, Stuart Weitzman, in addition to Capri Holdings’s Michael Kors, Versace and Jimmy Choo, creating a “new powerful global house”, Tapestry CEO Joanne Crevoiserat said in a statement on Tuesday.

Capri’s share price has jumped 56 per cent since the announcement today; Tapestry’s is down 16 per cent. Still, analysts agree the merger is a smart move for both companies, particularly amid ongoing economic disruptions for the aspirational consumer. It also opens up the potential for the group to expand to different lifestyle categories in the same way that LVMH has done. Tapestry and Capri’s combined projected annual revenues of $12 billion is a small fraction compared to LVMH and Kering, at €79 billion and €20 billion respectively. The group might be able to find its niche by staking its claim in the US and catering more to the accessible luxury consumer.

However, the success of the combined group will rely on Michael Kors’s turnaround.

In the fourth quarter of 2023, ending 1 April, revenue at Michael Kors decreased 10.9 per cent year-on-year to $910 million. In comparison, revenues at Coach increased 7 per cent in the third quarter ended 1 April to $1.14 billion. The downward trend at Michael Kors is largely due to overexposure coupled with excessive discounts via wholesale partners and at off-price department stores, as well as a slowness to adapt to digital and offer new product types to attract Gen Z, analysts say. Michael Kors accounted for around 70 per cent of Capri’s revenues during the quarter, putting the company in a vulnerable position.


“The key [risk is that] Tapestry is unable to turnaround the Michael Kors brand and
the complexity of the integration process proves much more costly than expected,” said UBS analyst Jay Sole in a note. “Tapestry will have to invest significant resources into the Michael Kors brand to drive sales growth. At a minimum, this process takes time, as Tapestry has shown with both its Coach and Kate Spade brands, and may not work.”


Some analysts feel more positive about the potential for Michael Kors’s turnaround under the management of Tapestry, which has seen success in moving Coach upmarket. “[Coach] tapped into consumer interest and turned around their business not only through re-energising the product but through strategy,” says Jessica Ramírez, analyst at consultancy Jane Hali & Associates (JHA). In particular, Coach’s step back from wholesale has proven favourable, she says, and it’s also managed to win Gen Z favour through launches including its Coachtopia line. Michael Kors could follow a similar strategy and strengthen its direct-to-consumer channels, digital and products.

However, if the turnaround proves challenging and Michael Kors declines further, it
could put the group at risk financially. Following the transaction closing, the company will take on four times net debt EBITDA, a high debt rate that could be risky, particularly given rising interest rates, according to Javier Gonzalez Lastra, luxury portfolio manager at financial services firm Tema ETFs.


Navigating the luxury positioning

American brands such as Donna Karan and Calvin Klein have “fallen off the radar” in recent years, says RBA’s Burke. Meanwhile, Marc Jacobs was acquired by LVMH back in 1997, Tom Ford was acquired by Estée Lauder Companies this year, and analysts say Ralph Lauren — which reported earnings of $1.5 billion for Q1 2023 — is unlikely to be swayed. Indeed, earlier this year there were rumours that LVMH was looking to acquire the brand.


With Capri’s Versace and Jimmy Choo under its belt, it opens up the opportunity for the new conglomerate to lean into a higher luxury positioning. “If you look at Capri’s recent acquisitions [Versace and Jimmy Choo], they’ve been steering the business more towards the European luxury positioning. [Tapestry’s acquisition of Capri] will probably bring that position into the new group, but it will be very small,” says Gonzalez Lastra of Tema ETFs.

Tapestry’s overall lack of experience in the world of true luxury might mean that
“managing the Versace and Jimmy Choo brands [is] more complicated than it
anticipates”, says Sole of USB. Gonzalez Lastra adds that, “the first priority is going to be to turn around and stabilise Michael Kors, but where do they go from there? Do they take the route of continuing to develop this American affordable luxury segment or do you start to move the group more towards high-end?”


Nevertheless, JHA’s Ramírez says there’s still space for aspirational purchases even during periods of economic downturn, so it’s not high luxury or nothing


The benefits of diversification

Accessible luxury players were hit hardest during Covid due to manufacturing delays and weaker consumer demand in China, and are now also taking the hardest hit from the economic crisis since their core consumer is affected to a greater extent than high-net-worth individuals. By diversifying the brand offering, the new group may be able to build more resilience.

“Today, to be localised in just one or two markets is too volatile,” says RBA’s Burke.
“We’ve gone through this intense period during Covid, and then coming out of it we realise that different countries recover economically at different times, and different countries have different challenges at different times.”

JHA’s Ramírez says Michael Kors has a strong international network, which Coach
could lean on.


The synergies across both companies will allow the new group to save $200 million in costs. The group will likely see benefits in retail spaces, customer data and inventory management.

UBS’s sole says the deal “positions Tapestry well to take advantage of how the retail world will change over the next five to 10 years” regarding customer data. “Tapestry already has a data-rich customer engagement platform and diversified, direct-to-consumer operating model. It has been converting to a platform company for the past few years, so likely has the infrastructure to integrate Capri. Thus, Tapestry could develop a data and scale advantage few others can match. This would lead to big market international expansion.”

RBA’s Burke adds that the group could take a position in a retail development and
combine their brands to cash in on advantages in terms of the lease and pricing.
Groups such as LVMH and OTB Group have followed similar strategies, in New York on 57th street and Shanghai’s JC Plaza, respectively.

If the group can turn around Michael Kors and bring debt down in the next 18 to 24
months, Tema ETFs’s Gonzalez Lastra thinks the new conglomerate could be in a good position to expand. “I don’t think this is where they’re going to stop in terms of acquisitions — but whether those acquisitions are more in high-end or affordable luxury [remains to be seen].”

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