Pedestrians pass by the Coach store and the Michael Kors store.
Scott Olson | Getty Images
The US Federal Trade Commission filed a lawsuit on Monday to block the $8.5 billion takeover Capri Holdings By the parent company of Coach and Kate Spade, texture.
The move by regulators puts at least a temporary halt to a deal that would combine two major names in American luxury retail and put six fashion brands under one company: Tapestry's Coach, Kate Spade, Stuart Weitzman, Capri's Versace, Jimmy Choo and Michael Kors. . Through this deal, luxury brands could be prepared to better compete with European luxury names, such as Burberry and Louis Vuitton from LVMH.
In a press release, the FTC said the combined company would harm shoppers and employees. Tapestry and Capri “currently compete on everything from clothing to eyewear to shoes,” she said.
“Aiming to become a serial acquirer, Tapestry is seeking to acquire Capri to strengthen its stronghold in the fashion industry,” Henry Liu, director of the FTC's Bureau of Competition, said in the statement. “This deal threatens to deprive consumers of competition for affordable handbags, while hourly workers will lose out on the benefits of higher wages and more favorable working conditions.”
Tapestry argued that the federal agency “fundamentally misunderstands the market and the way consumers shop.”
It should win the business of consumers who are increasingly shopping across brands, channels and price points, the company said in a statement.
“The bottom line is that Tapestry and Capri face competitive pressure from both lower and higher priced products,” she said. “In bringing this case, the FTC has chosen to ignore the reality of today’s dynamic and expanding $200 billion global luxury industry.”
Capri echoed this argument in its own statement, saying consumers “have hundreds of handbag options at every price point across all channels, and the barriers to entry are low.”
Both Tapestry and Capri said they would fight for the deal in court, and Tapestry said it would work “expeditiously to close the transaction in calendar year 2024.”
Tapestry announced the proposed acquisition in August. The deal was expected to close in 2024. It has already received approval from regulators in Europe and Japan, according to a financial filing the company filed earlier this month, but is still awaiting approval from U.S. officials — the only regulator still pending. .
When Tapestry revealed the deal, CEO Joanne Crevoiserat told CNBC that the two combined companies would be able to reach more customers around the world. Together, the two companies will generate annual revenues of more than $12 billion and have a presence in more than 75 countries.
Both Tapestry and Capri have come under pressure, as consumers remain more selective about discretionary spending. However, Capri, in particular, was more vulnerable because of Tapestry's greater reliance on department stores and other mass retailers.
Tapestry, led by Crevoiserat, raised the profile of Coach's brand, appealed to younger shoppers, and tried to rely on fashion and loyalty, rather than deep discounts, to achieve higher sales and profits. The vast majority of Tapestry's sales are through its website and own stores, with wholesale accounting for only about 10% of sales globally in the most recently reported fiscal quarter.
As of Monday's close, Tapestry shares were up about 10% so far this year compared to Capri stock, which was down about 24% over the same period.
