In April, the Federal Trade Commission, which hadn’t seriously disrupted fashion commerce in a generation or so, rediscovered the industry and stepped up, suing to block Tapestry’s $8.5 billion acquisition of Capri Holdings.
This autumn, the fashion industry will find out whether regulators are up to the challenge.
The FTC, which voted 5-0 to file suit against the acquisition, said the deal would “eliminate direct competition” between Tapestry’s portfolio of brands: Coach, Kate Spade, Stuart Weitzman and Capri’s Michael Kors, Versace and Jimmy Choo.
The lawsuit focuses on a specific segment of the market, the exact scope of which will be defined by the court.
“Today, the companies compete in everything from clothing to eyewear to shoes,” the lawsuit states, “but the area in which Coach, Kate Spade and Michael Kors compete most intensely and enjoy significant market share is handbags, specifically ‘affordable luxury’ handbags, where each company offers high-quality products purchased by tens of millions of Americans.”
The FTC also specifically accused Tapestry of a “pattern and strategy of serial acquisitions.”
Tapestry CEO Joan Crevoiserat told WWD this spring, “The consumer is totally in control here, and if we don’t provide the innovation that the consumer values, they have other options. There are big players in the market, and new entrants enter the market every day. A celebrity wears a bag for the evening, or some cool designer from Brooklyn designs a bag. There are no barriers to entry. So unless we stay on top of what the consumer values and provide the innovation behind it, we’re not going to be able to compete.”
The two sides will meet again next month before a federal judge, who will ultimately decide whose arguments prevail.
The case has become even more intriguing with the U.S. government’s recent decision not to further investigate Hudson’s Bay Co.’s $2.65 billion acquisition of Neiman Marcus Group and its merger with Saks Fifth Avenue, which was facilitated with financial backing from Amazon and Salesforce.
Regulators automatically review major transactions, but in more complicated cases they make what are called “secondary requests” for more information. In this case, the government decided to approve the deal even though both companies are the largest luxury department store retailers in the United States.
