Analysis: the Tapestry group's takeover of its rival Capri Holdings will have a major impact on the market for accessible luxury handbags
If you have ever bought or even heard of the Kate Spade, Coach or Stuart Weitzman brands, you may not realise they are all connected as part of the Tapestry empire. Tapestry is now proposing to acquire Capri Holdings, whose brands include Versace, Jimmy Choo and Michael Kors, for US$8.5 billion.The companies announced the merger in August 2023 and it was approved by regulators in the EU and Japan.
However, the US Federal Trade Commission (FTC) sued to block the merger in April of this year. This was because of concerns around the likely increase in prices for accessible luxury handbags and the effect on workers' compensation.
Defining the luxury market
Defining luxury is not easy. For example, do you think of luxury as being decided by price? Maybe one sees bags priced at €100 to €500 as "affordable luxury" and bags priced above this price-point as "high-end luxury"? However, would two bags priced at €499 and €501 really be in distinct categories?
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An alternative is to think about materials. However, you can find leather bags in high-street shops and many "luxury" brands are moving toward sustainable and/or recycled materials, so this is also not an obvious way of defining luxury.
For merger purposes, Tapestry and Capri want to define the broadest possible market, so that they represent a small part of it. If the market is "luxury", then they would compete with other big conglomerates. In Europe, high-end luxury fashion is largely controlled by two French conglomerates: LVMH (Louis-Vuitton-Moet-Hennessy which also owns Hermes, with its exclusive Birkin bag, and Christian Dior) and Kering (home to YSL, Alexander McQueen and Gucci).
Tapestry dominates the accessible luxury market, a marketing term originally used by Coach to position its brand. For example, a Michael Kors handbag is still high-quality, but much more affordable than an YSL handbag, making it more accessible to middle-class consumers. One other major difference is that accessible luxury items are often discounted (around Black Friday, for example) whereas high-end luxury is always sold at full price.
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FTC is likely defining the market as accessible luxury, but how it defined competitors is still unclear. The Wall Street Journal suggests that Michael Kors (Tapestry) and Coach (Capri) alone accounted for 53% of the sales of affordable luxury handbags in 2022. However, Tapestry suggests that the relevant market is luxury, a $200 billion industry, in which case Tapestry-Capri would represent less than 10% of it.
The effect on prices for accessible luxury handbags
Despite the number of brands remaining the same, consumers of accessible luxury handbags post-merger will have less choice as many will be owned by Tapestry-Capri. Currently, the brands are highly sensitive around prices, promotions, and strategy. If the rivalry disappears, this will likely increase prices.
Importantly, demand may also increase. If Michael Kors bags become more expensive, for example, this makes them more exclusive, and, with luxury goods, this is often a selling point.
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What this means for the luxury market?
Other competitors, such as Rebecca Minkoff, are cited in the FTC's complaint as acknowledging the difficulty of competing post-merger. FTC also claims that Tapestry plans to become a serial acquirer, which would further increase its market power (and prices), not only in the handbag market. This will also increase the price of luxury handbags, making them even more exclusive.
Obviously, accessible luxury handbags (and the other items sold by these brands) are discretionary purchases. If you don’t want to buy one, then the price increase won’t directly affect you. Still, the effects of the merger could be broader. The merger would mean that most shops in a moderately upscale shopping centre would have the same owner. This impacts the workers in those shops, which would then have the same "boss".
The FTC’s complaint mentions that Michael Kors (Capri) matched the $15 hourly wage at Tapestry brand shops within a few months in 2021. The merger will remove the need to match wages and working conditions, and the bargaining power of workers will be highly reduced, as many shops will be owned by the same group.
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Should the merger be blocked?
In 2023, the combined revenue for Capri and Tapestry was $12 billion, far below LVMH’s revenue of $80 billion. Tapestry also reported a decline of 1.8% in quarterly sales in May, which is its "worst sales performance" according to GlobalData.
The current number of employees (33,000) is also relatively small. Even if Tapestry is allowed to acquire Capri and further brands or groups, it will take time until it becomes the same size as LVMH.
But these are discretionary purchases, so consumers don’t have to accept the (likely) increase in prices post-merger. Tapestry has said that the merger will increase quality and not markups (the price-to-cost margin). This is typically not the case with mergers, which often lead to less innovation. However, if this were to be the case, perhaps the higher price-higher quality effect would become a selling point. The FTC has recently lost big cases against Meta and Microsoft, but this is a very different and much smaller market. It will be interesting to see how the case develops. The firms must close the deal by August 10th.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
