FROM OUR AUGUST 2024 ISSUE: SPEAK NOW OR…
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Fashion brands have historically relied on mergers and acquisitions (M&A) to drive growth and navigate inflationary environments and supply chain pressures during times of slow demand for apparel and accessories. European brand aggregators LVMH, Kering, and Richemont have expanded into luxury conglomerates with a size and scope covering multiple luxury fashion and lifestyle categories. It is perhaps not surprising then that here in the United States, the luxury group Tapestry (which holds brands including Coach, Kate Spade, and Stuart Weitzman) has been relying on an agreed merger with rival luxury conglomerate Capri Holdings (which owns Michael Kors, Jimmy Choo, and Versace) to propel the combined company into the luxury conglomerate big leagues and more effectively compete with the European powerhouses.
However, in April of this year, the US Federal Trade Commission (FTC) sued to block the transaction, alleging that Tapestry had a recognized pattern of acquisitions of other brands and a “goal to become a serial acquirer.” The FTC additionally noted that the proposed transaction would eliminate “direct head-to-head competition” among the two companies’ owned brands and give Tapestry a dominant share of the “accessible luxury” handbag market, a moniker the FTC indicated Tapestry had itself created “to describe quality leather and craftsmanship handbags at an affordable price.” Tapestry indicated in its press release regarding the lawsuit that the FTC just doesn’t understand the luxury fashion marketplace and the way today’s consumers shop and “has chosen to ignore the reality of today’s dynamic and expanding $200 billion global luxury industry.”
The fact is that both Tapestry and Capri Holdings face competition from both lower- and higher-priced products, not to mention the aforementioned European luxury “big- three” conglomerates (each of which would still hold more global market share than the combined Tapestry and Capri). But the relevant market share to the FTC is the United States (not the global market) and they are pushing for “accessible luxury” to be considered its own market. This seems to be a very narrow reading of the relevant market and unduly burdensome on the potential new U.S. conglomerate. While I am by no means a protectionist, I wonder how the FTC can take issue with a combined Tapestry/Capri Holdings market power and yet not have any apparent concerns with its large European rivals, particularly LVMH. It’s odd to see a US regulatory body so openly slanted against a US company’s interests in favor of a very successful and concentrated foreign conglomerate.
“We have full confidence in the merits and pro-competitive nature of this transaction,” Tapestry has said. “It will bring significant benefits to the combined company’s customers, employees, partners, and shareholders in the U.S. and around the world. We have strong legal arguments in defense of this transaction and look forward to presenting them in court and working expeditiously to close the transaction in calendar year 2024.”
I hope so. Recent softer demand for luxury goods has been dragging down Tapestry’s financial performance, so prevailing in this battle with the FTC is crucial to its ability to compete with LVMH, Kering, and Richemont. Lawyers for both sides will be preparing all Summer as the court date is set for September 9th.
Douglas Hand is one of the preeminent fashion lawyers in the country. His industry bona fides include being a member of the CFDA Fashion Awards Guild, chairman of the board of FIT, professor of fashion law at NYU and Cardozo Schools of Law and recognized Super Lawyer for the past ten years. He can be reached at dhand@hballp.com.