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

I’m not sure of the details motivating Tapestry and Capri, but much of the industry discussion referenced a goal of creating an “accessible luxury” conglomerate–somewhat rivaling what LVMH and Kering have built–but American. Let’s say this was the reason, or at least a big one. Ok, sounds good to me! America gave fashion the zipper at least, among many other pivotal styles, models, brands, and our country has a very important foothold in the global fashion industry. Gorgeous! But, as far as putting this American conglomerate capsule together, there could have been more looks–on the side of the deal and the side of the court. 

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). 

Just recently, American luxury group, Tapestry, found itself standing before the court in a standoff against the Federal Trade Commission (FTC). Tapestry, the group housing brands like Coach, Kate Spade, and Stuart Weitzman, is in the midst of an $8.5B acquisition of Capri Holdings, the house containing the likes of Michael Kors, Jimmy Choo, and Versace. As often the case, the crux of this FTC claim is the concern of reduced competition, with so many brands rolling up to the same owner. The concern is the limitation it will put on the "accessible luxury market". It is often considered the market for those just getting into luxury goods, like teens and young professionals, or those choosing not to pay exuberant prices, no matter the heritage of the brand. 

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...