B.A.F.F.L.E.D. Fashion Law
How the Tapestry - Capri Merger Could Have Been Styled Differently
Key Takeaways
There’s More than Handbags: The merger could have highlighted Tapestry and Capri's full product range to counter the FTC’s narrow "handbag" focus. Both brand groups sport more than just bags.
Showcase Brand Diversity: Emphasizing brand variety across different luxury segments could have lessened competition concerns.
Position as an LVMH Rival: Framing the merger as a diverse, American luxury powerhouse like LVMH might have strengthened its strategic appeal.
This blog was founded on a great interest in the business side of the fashion industry–first in law, then in mergers and acquisitions. I couldn’t have been more glued to my news alerts and the Federal Trade Commission (FTC) website over the last few months as the merger between Tapestry and Capri Holdings played out. At the time of this publishing, the case between Tapestry, Inc. and the FTC is pending an appeal. The Southern District of New York court ruled in favor of the FTC, blocking the $8.5B merger, citing a reduction in competition, among other elements. Tapestry filed a notice to appeal, but a couple weeks later (November 14, 2024), chose to end the plan to merge. While the brands are figuring out their path forward, I think there are some ways this could have been styled differently.
Styling the Deal
Thinking about the term “accessible luxury”, a term actually coined by Coach in 2000, I reflect on the designations of luxury as articulated by Image Consultant, Andre Wilson. There are three distinct levels, and they’re about more than just handbags. So where was the stuff other than handbags? Between the 6 brands in this deal–Coach, Stuart Weitzman, and Kate Spade on the Tapestry side, and Michael Kors, Jimmy Choo, and Versace on the Capri side–there’s way more than just handbags here. There’s perfume, shoes, apparel. That variety didn’t seem to make it to the spotlight from either side. Growing them also didn’t make it to the final deal. Once the court accepted the FTC’s definition of the “product market” to be “accessible luxury handbags”, there was no turning back from there. Adornments were left behind. Competitive conditions were limited.
What quickly came to mind with all the talk about handbags was, “What about other segments?!”. Even at the accessible luxury level, there are attractive segments which could make this merger less about handbags and allegedly watering down that segment, and more about strengthening the assortment of the brand suite. I wondered why Tapestry didn’t look to include a skincare brand or color cosmetics company in the acquisition. Did they consider a fragrance or accessible luxury experience company to include? Or, maybe start there before doubling down on “handbags” and a holding company with the same additional segments they already live in. It was curious there wasn’t an inclusion of a brand headlining something other than bags, to drown out the accusation of eliminating head-to-head competition. The Coach v. Michael Kors perspective isn’t lost. Some do see the brands as market equals. Others would only buy one, and never the other, darling! As noted by management expert Peter Drucker, “the purpose of business is to create and keep a customer.” Doubling your customers’ options in a category can be a good thing. Giving them even more variety can be even better. It seems the FTC and Judge Rochon think so, too.
A road to fashion domination
Not only could the variety in a boldly multi-segmented deal have helped in court, but it could also help temper the market concerns outlayed in the opinion. It’d be a shiny jewel in America’s fashion industry wardrobe. The pace and cycles of fashion make way for portfolio diversity as almost a mandate. Items can be “in” and “out” within weeks, so creating a diverse portfolio for optimal, long-term success sort of goes without saying. As mentioned earlier, there are other segments among the 6 Tapestry-Capri brands besides handbags. But they didn’t get any shine. Not even Versace, which is an iconic couture clothier.
As fashion law expert and Founder of the Fashion Law Institute at Fordham Law School, Susan Scafidi noted to Business of Fashion, “The court seems to really think that buying one brand is very much like buying another, like the way you might buy one hammer over another.” She’s right. As we all know this isn’t the case in fashion and beauty. Brands matter, sometimes even more than the product itself. It’s heritage, prestige, and reputation. It’s quality, impression, and legacy—all the things that make fashion and luxury at any of the three levels. As noted in the opinion, “the conclusion most consonant with the evidence is that handbag consumers do “purchase brands”. To ignore the peculiar role of brands in the handbag market would be to ignore the commercial realities of the industry.” It was acknowledged about brands, but didn’t make the cut for their categories.
The Beauty of Strategics
Adding to what Professor Scafidi said, there's a dynamism in fashion, and beauty, too, which is ripe to be capitalized on. Every brand suite cannot and does not want to be LVMH, but there is no hiding the fact that they're on to something. LVMH encompasses the sectors of wine & spirits, fragrance & cosmetics, jewelry & watches, leather goods & fashion, selective retailing, and other activities. Almost all of the 6 brands in the Tapestry-Capri suite have products in some of these same spaces. The case didn’t shed light into this variety. With the fashion and beauty space currently being a buyer’s market, there are a plethora of options on building a sustainable house with strategics to weather storms—particularly when those storms include rain from the FTC.
Speaking of the market…
I have no doubt the folks working on the Tapestry-Capri deal sorted through a myriad of options. Strategics was likely a consideration, especially as many brands are looking now to implement incubation relationships and licensing opportunities to strengthen their industry presence. It seems still, there was something missing, particularly after the seesaw effect of the Tapestry and Capri stocks, respectively. Tapestry’s stock shot up 15% following the ruling, while Capri’s took a 45% dip. Recent market performance of each side came to the forefront through this result.
Handbags held the story
What stood out was the runway walk past fashion portfolio diversity–both on the side of the court and the side of the brands seeking merger. Sure, the FTC quickly imposed a limited definition of the product market under the standards of Section 7 of the Clayton Act protecting competition. But also, Tapestry-Capri didn’t put their full scope forward, neither in the segments they currently occupy, nor in acquisition efforts. This includes other brands which would have presented enough diversity in the suite to keep the focus far from that of a market double-down.
As many investors worth their own market share know, a diverse portfolio is everything. Anyone looking to do the best for their business knows diversity is a strength–whether in population, experience, background, thought, perspective, or otherwise. The next steps are worth watching, particularly as the merger has now been called off. Capri plans to revive Michael Kors, and Tapestry plans steady growth without the add of 3 additional brands. It’ll be a headturner.
B.A.F.F.L.E.D. Fashion Law
Big Merger Style
After a little break in August, which we hope you enjoyed, too, we're back with a discussion on the collision of 2 of our favorite things--fashion and M&A (mergers and acquisitions).
Tapestry and Capri see things differently.
The yet to be united Tapestry and Capri believe this merger will not only be good for the consumer market, but for America on the luxury stage altogether. Tapestry claims the deal will spur innovation, optimize economies of scale on the business side and improve options, selection, and experience on the customers side.
The FTC counters with the claim the Tapestry foothold would drive up prices, limit consumer options, and make the "accessible luxury market" diminish greatly. They see it creating a greater divide between the haves and have-nots, hurting the economy versus doing any good. Understanding the power of these conglomerates in the marketplace, there's also a good chance this deal could push consumers to younger, upstart brands. This would be a positive for those companies, but the scope to which it'd be able to impact them is difficult to determine.
Proceedings could take a while, and they're just a little over a week into hearings thus far. If approved, the combo positions Tapestry in a similar vein to LVMH, and elevates the American luxury house in a space long dominated by European houses stunting brand heritage and legacy.
Being such a diverse nation, the hope is there will be great benefits in this deal across all of its many parts, for all of our many diverse business and consumer types.
We'll be watching this one...
B.A.F.F.L.E.D. Fashion Law
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B.A.F.F.L.E.D. Fashion Law
A Potential Way For More Designers To Monopolize Specific Style Characteristics…
You want to know why Christian Louboutin is the only shoe designer who can use the color red on the soles of its shoes when the shoe itself is any color but the color red? I can sum it up for you in three words –Trade Dress Protection— a form of United States trademark law. Want to learn more about how Christian Louboutin was able to stop Yves Saint Laurent and any other design from making shoes with red soles unless the entire shoe will be red? First, let me give you a quick trademark law breakdown.
The purpose of trademark law is to prevent consumer confusion. Labels let consumers know what to expect from a particular brand. Trademarks can be any word, symbol, sound, color, phrase, or combination used to identify and distinguish one source from another and help consumers identify the product in question.
Trade dress protects the overall commercial look and feel of a product or service. Its range is extensive, and the protection extends to various elements of a product or product packagings such as the shape, design, color, and more. Trade dress takes its security one step further, and it allows trade dress protection for establishments with a distinct look and feel of a product or establishment. Still, like trademark protection, to be eligible for trade dress protection, the design must be distinct and nonfunctional. Essentially, distinct means unlike any others in the market place and nonfunctional as in the design is not required for the product or design to work.
So now that we have gotten through that trade dress law blitz, let's get back to the questions before us:
(1) How was Louboutin able to stop Laurent and any other designer from making shoes with red soles unless the entire shoe is red?
(2) Why aren’t more designers using trade dress protection to create a monopoly in a specific brand recognizer for their designs?
(3) Is your brand eligible for trade dress protection?
In short, Louboutin’s iconic red sole has built up significant source recognition, which has resulted in the sole qualifying for secondary meaning. Furthermore, the design feature is distinct from amongst the fashion house's competitors. When people see a shoe with a red sole, they almost instinctively think that Christian Louboutin made the shoe. The soles, therefore, help the designer distinguish itself from its competitors. Trade dress protection at its core is about distinctiveness and source recognition.
In the groundbreaking lawsuit between Louboutin and Laurent, Laurent wins the battle, but Louboutin won the war. The court ultimately determined that Louboutin was entitled to trade dress protection for their signature red soles. Yet YSL was allowed to make shoes with red soles as long as the entire shoe is red. The court further found that the Louboutin's trade dress, consisting of a red, lacquered outsole on a high fashion woman's shoe, has acquired limited "secondary meaning" as a distinctive symbol that identifies the Louboutin brand. Secondary meaning is the key to trade dress protection. Secondary meaning is a legal term of art that represents a designation given to trade dress that by itself is not necessarily inherently distinctive. However, the general consumer of that product has grown to associate that symbol with the brand its self. One generally does not acquire secondary meaning overnight.
To take advantage of trade dress protection, a designer would need to (1) identify its signature designs and colors and (2) use the designs and colors in a manner that makes the designer's brand distinguishable from others similarly situated in the marketplace. The best way for a designer to posture their brand for trade dress protection is to implement these design characteristics early on in its lifetime. Building brand recognition is a slow grind, and the road to trade dress protection is a long road. The length of the process leaves many designers vulnerable to design pirates.
Ultimately, whether your designs are eligible for trade dress protection will depend on whether your designs have source-identifying characteristics. Acquiring trade dress protection can be a long process, and the protection offered can be minimal. For example, in Louboutin, the court found that the red sole alone was protectable when the shoe itself was not all red. To obtain trade dress protection for your designs, one would have to wait until you have acquired secondary meaning. Additionally, you will need to use other forms of intellectual property protection for the design parts that trade dress protection will not protect. The narrow protection trade dress protection provides, paired with the cost and amount of time it takes to obtain trade dress protection, make it an unattractive choice for many designers.
B.A.F.F.L.E.D. Fashion Law
If you've been watching national news lately, you know the president is pushing for tariffs on items imported from China. This has a major impact on local and state governments in America, who rely on Chinese companies for some of their infrastructure items like railcars, for example. Certainly we support domestic jobs and manufacturing, but the reality is, much has moved overseas. These are the cards dealt.
Imposing these tariffs could really hit closer to home--literally, if clothing and beauty items are swept into the list. The likelihood is there. Not only would items like synthetic and human hair be included, but lipstick, shampoos, and other essentials. Consumers will really flock to small business if that becomes the case (which we support!). The tariffs could also have an impact on the creative industry, in further flourishing the counterfeit market. Like the now-shifting market in Iran, the love for high fashion, but barriers to enter the market can call for desperate measures.
Counterfeit luxury items are sold openly in Iran. It's almost a market necessity, as the global economy was long cut off because of international sanctions. Importers have struggled to bring good into the country. Consumers haven't let their wants struggle. Neither have knockoff merchants. As many sanctions have been relaxed over the last couple years, the market is sliding toward change, but not easily. Despite super conservative leadership in Iran, counterfeiters found ways to get consumers what they wanted--even if it meant taking on detested Western ways of loving luxury.
The proposed Chinese tariffs in America could make for a similar situation. Sure, there's already a counterfeit market here, and it's unlikely there won't always be one. But, if brands are cut off in such a way to create burdens consumers aren't used to, counterfeiters will definitely find a way to meet demand--whatever it takes. When it comes to counterfeits in the health and beauty industry, it's more than just bags with questionable logos. Formulas and chemical compounds are at stake. Health is a whole different ballgame.
As hearings continue on this issue in D.C., it is worth keeping an eye on. Will counterfeits be king?
B.A.F.F.L.E.D. Fashion Law
B.A.F.F.L.E.D. Fashion Law
In late 2015, France took a stand against negative body images continuing to rule the fashion industry. The nation began requiring fashion models to provide a doctor's approval, certifying they were healthy enough to walk the runway. As a cornerstone in the age old fashion industry, France's moves are always seen with deference. The U.S. has made attempts to address child labor laws, but are still working on achieving something similar for adults. The American Journal of Public Health praised what France did in '15. This time, France is requiring publishers and photographers to include a warning label, "Photographie Retouchee'", on any picture with retouched or photoshopped models. Major fines will be assessed if the warning is not included. The hook is to warn consumers when they are seeing an image of a model altered to look skinnier than they actually are---further "skinny praising", less natural body praising in general.
The law was first filed in 2009, but hasn't come to fruition until now. Over the years, there's been praise and opposition for it. Some see it as necessary to reversing the many years of trends in skinny overruling all other sizes. Others see it as unnecessary--"we know ads are made to sell dreams and make-believe".
How do you think this will work? Is it necessary? Should other countries require it, too?
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| This photo shows a body chain made by B.A.F.F.L.E.D. fave, Ready to Stare - a body positive brand. |
B.A.F.F.L.E.D. Fashion Law
Just when the counterfeit market thought it was gaining, particularly with retail experiencing a stumbling block, technology has stepped in to do what it does best--change the game. To fight back against fakes in the market, the folks at Entrupy created a scanner to determine the real from the fake.Obviously you can train a machine to do almost anything these days. Now, this machine-learning system can scan an item and with up to 98.5% accuracy, determine whether it's the real deal or just another really good copy. As you know, goods are in the market in 4 different classes. This device will be able to separate the 1s from the 2s with almost complete certainty. Because of its advanced technology, it will also be improving its accuracy with every use.
Entrupy won't be marketed to the individual consumer, but primarily geared toward retailers looking to ensure they are selling genuine products, and not gray market goods--those made in legit factories, but outside contracted terms. This device will also put gray marketers on the defense, forcing them to find ways to defeat the system. The goal of the scanner is to ensure trust in what consumers are purchasing.
"We built Entrupy as a scalable and versatile platform in response to the rapidly growing counterfeiting issue and need for trust when it comes to product transactions." Vidyuth Srinivasan, Entrupy's co-founder told Digital Trends.
This device will most certainly give the gray market a run for its money. It may press legislators to act on further protecting designs as well.
For more on gray market goods, click here.
B.A.F.F.L.E.D. Fashion Law
Until now, no case hailing from the niche of fashion law had stepped onto the U.S. Supreme Court stage. A decision this week has changed that.
The Star Athletica v. Varsity Brand case has become a trailblazer for copyright in the fashion industry. Just yesterday, the SCOTUS found decorative items--specifically those common on cheerleading uniforms--to be protectable under copyright law. This ruling is contrary to years of cases in lower courts, where opinions have continuously determined decorative elements of clothing were inseparable from the garments themselves.
In the only apparel-related case to ever come across the docket, the Supreme Court made a determination which could change the fashion industry forever. Law360 noted, "The question before the justices was how courts should decide when such “separability” exists, an issue that has split lower courts. Fashion companies pushed for a looser approach that would allow them to protect more apparel with copyrights; consumer advocates called for a tighter approach, meaning less protection and more competition."
The fashion companies won.
With this ruling, designers now have a gateway to protecting the artistic elements of their designs, and drawing a long-awaited distinction between their unique work, and a useful item (clothing). Surely this case will set the stage for more litigation, as designers will have firm ground to stand on when exercising their vigilance in protecting their work. It may also set the stage for shocking the conscious of the counterfeit market.
This has been quite the fight for those of us knee-deep in the fashion law industry. What will fashion law conquer next?
B.A.F.F.L.E.D. Fashion Fix
Over the last 2 years, the handbag market has seen its share of struggles. Brands like Coach and Michael Kors have opened new store after new store, more outlet shops, and even lowered some of their prices. This sounds good. Having the numbers to grow your brick and mortar presence is always a good thing. Or is it?
Alone, growing in brick and mortar is good, but the handbag market suffered a bit last year, growing just around 2%. Sure, that's hard to see as a struggle in a $9.3billion industry, but best believe, the brands are feeling it. Some of the reason for the shift is discounting and brand saturation. Other contributors are the trends toward specialty bags--whether it be a collaboration between Kerry Washington and Aquatalia, or a cause-focused bag focused on an important social issue. Consumers are increasingly enjoying putting their money behind a cause, and getting style as an added bonus.
It's hard to think handbags would go out of style. It really is quite unlikely. But, like everything else, there are industry ups and downs. With the rise in e-commerce, retail is experiencing a shift away from traditional shopping. Marketplaces like Amazon and Etsy are providing challenging circumstances for shopping mall staples like Macy's, Wet Seal, and The Limited. Now they've had some real struggles!
Surely in readjusting their prices, and being conscious about bag placement, luxury designers will rebound from this slump they've seen recently. The question is, how will e-commerce and the "app age" play into their future success? Marketing gurus certainly have a challenge on their hands. Retail execs, too.