By Claire Moraa
- The FTC has blocked an $8.5B acquisition between Tapestry and Capri Holdings
- The decision is based on taming potentially anti-competitive acquisitions
Tapestry Inc. (TPR +1.30%)–the parent company of luxury brands like Coach, Kate Spade, and Stuart Weitzman and Capri Holdings Ltd. (CPRI -6.68%)–the owner of Michael Kors, Jimmy Choo, and Versace had proposed a merger worth $8.5 billion. The aim was to tap into the booming streetwear culture and leverage the spending power of Black consumers. However, the Federal Trade Commission (FTC) has made a noteworthy victory in its antitrust regulation in ensuring fair competition and protecting consumers from potential monopolistic practices by stopping this merger.
Why This Matters: Tapestry and Capri are both big names in the luxury industry and have been competitors for a while. Competition is an important ingredient in the luxury market as it keeps brands on their toes while giving consumers options. The combined entity would have had significant control over multiple luxury brands across categories like handbags, footwear, and apparel. Further, since both brands have overlapping products, consumers would be getting the shorter end of the stick with fewer choices and little to no product differentiation.
While the FTC is looking out for consumers’ interests and ensure that market competition remains robust, Capri is trying to keep its head above water. One of its brands–Michael Kors has not seen the light since the $4.7 billion peak 2016. Its sales have been on a downward spiral with sales tanking 25%. Capri Holdings tried to diversify beyond Michael Kors by acquiring Jimmy Choo, a high-end footwear brand, and later Versace hoping to balance the portfolio with higher-end luxury offerings and potentially offset the struggles of Michael Kors. Unfortunately, this has not been the case as sales have further dropped by 16.4% after news of the merger not going through. It’s a bitter pill to swallow but it looks like the reduction of direct competition could limit the incentive for both companies to innovate, as their products and strategies would likely become more aligned and less differentiated.
What’s Next: Tapestry has been doing well so the pause on this merger is less likely to have a significant impact on its brands. Capri on the other hand is between a rock and a hard place. Continued delay makes the merger a distant dream and as the global luxury goods market size is projected to reach $577.3 billion by 2029, it may miss its seat on this bus. Perhaps both companies could go back to the drawing board and propose new terms to the merger to make it more palatable to the FTC.
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