Tapestry and Capri are engaged in a fierce competition across various product categories, ranging from clothing to eyewear to shoes. However, the battleground where the rivalry between the two companies intensifies the most is in the realm of "accessible luxury" handbags.
The Federal Trade Commission has taken legal action today to prevent Tapestry, Inc. from acquiring Capri Holdings Limited for $8.5 billion. This acquisition aims to merge three major competitors - Tapestry's Coach and Kate Spade brands with Capri's Michael Kors brand. If approved, this deal would eradicate direct competition between Tapestry and Capri, while also granting Tapestry a significant share of the "accessible luxury" handbag market. This term, coined by Tapestry, refers to high-quality leather and expert craftsmanship at an affordable price.
The Commission has taken action by filing an administrative complaint and granting permission for a lawsuit in federal court to prevent the proposed acquisition. They argue that if Tapestry acquires Capri, it will result in the elimination of intense competition between these two companies.
The Commission has taken action by filing an administrative complaint and granting permission for a lawsuit in federal court to prevent the proposed acquisition. They argue that if Tapestry acquires Capri, it will result in the elimination of intense competition between these two companies.
“With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry,” said Henry Liu, Director of the FTC’s Bureau of Competition. “This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions.”
Tapestry and Capri are engaged in a fierce competition across various product categories, ranging from clothing to eyewear to shoes. However, the battleground where the rivalry between the two companies intensifies the most is in the realm of "accessible luxury" handbags. Specifically, Tapestry's Coach and Kate Spade brands go head-to-head against Capri's Michael Kors brand in this lucrative market.
In this cutthroat industry, Coach, Kate Spade, and Michael Kors constantly keep a close eye on each other's handbag brands, meticulously analyzing pricing and performance. Armed with this valuable insight, they strategically decide whether to increase or decrease the prices of their handbags, aiming to gain a competitive edge.
Over the past ten years, Tapestry has been on a mission to transform itself into a powerhouse in the American fashion industry. Through a series of strategic acquisitions, they have steadily built up their portfolio of fashion brands, successfully adding numerous coveted labels to their collection.
Now, with the potential acquisition of Capri, Tapestry aims to solidify its position as the unrivaled leader in the "accessible luxury" handbag market. This move, however, could have consequences for millions of Americans who enjoy purchasing Coach, Kate Spade, and Michael Kors products. The Federal Trade Commission alleges that if the deal goes through, consumers may face higher prices as competition dwindles and Tapestry gains an overwhelming market share.
Both Tapestry (TPR) and Capri (CPRI) expressed their disapproval of the FTC's decision. Capri's shares saw an increase of 0.8% after hours, whereas Tapestry experienced a 0.3% gain(Morning Star). According to The New York Times, the agency was planning to halt the deal. The deal, announced by the companies in August and anticipated to be finalized this year, is facing scrutiny from regulators due to concerns about rising prices, which is a key concern for customers and President Joe Biden's administration in an election year.
Tapestry emphasized in a press release, that the agreement would bring advantages to customers, while also criticizing the FTC for misinterpreting the fierce competition within the fashion sector. The company highlighted its competition with numerous competitors, both established and emerging, and remained optimistic about its capability to uphold the deal in a legal setting.
“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."
“Capri Holdings strongly disagrees with the FTC’s decision. The market realities, which the government’s challenge ignores, overwhelmingly demonstrate that this transaction will not limit, reduce, or constrain competition. Tapestry and Capri operate in the fiercely competitive and highly fragmented global luxury industry. Consumers have hundreds of handbag choices at every price point across all channels, and barriers to entry are low. Capri intends to vigorously defend this case in court alongside Tapestry and complete the pending acquisition. The U.S. FTC is the only regulator that did not approve this transaction, which received required approvals from all other jurisdictions. We remain confident in this combination and the value it will bring to all stakeholders.”
Tapestry's continuous string of acquisitions has led to the acquisition of Capri, solidifying its dominance in the market. The FTC believes this move will create obstacles for new brands trying to establish themselves and compete effectively, as per the FTC.
The acquisition of Capri is just one step in Tapestry's expansion strategy, giving them more power to pursue further acquisitions in the future. According to the complaint, Tapestry shows no signs of slowing down its acquisition spree even after this merger.
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