Imagine a single fashion powerhouse controlling Coach, Kate Spade, Stuart Weitzman, Michael Kors, Versace and Jimmy Choo. 

This could become reality if Tapestry’s proposed $8.5bn acquisition of Capri Holdings succeeds. However, the merger remains in question by virtue of a pivotal legal battle now being waged in the Southern District of New York – the Federal Trade Commission’s (FTC) lawsuit to block the deal, which could reshape the ‘accessible luxury’ market and have far-reaching implications for the fashion industry.

The heart of the matter: FTC’s legal challenge

The FTC’s lawsuit argues that the merger would violate antitrust laws by reducing competition in the accessible luxury handbag market. The agency claims that a combined Tapestry and Capri would eliminate direct competition, potentially leading to higher prices, reduced innovation and fewer choices for consumers.

According to the FTC, the merger would give Tapestry a dominant share – more than 50% – of the accessible luxury handbag market, defined as handbags priced between $100 and $1,000. This level of market control, the FTC contends, could harm millions of American consumers who currently benefit from competitive pricing, discounts, promotions, design, marketing and advertising. The lawsuit also raises concerns about potential negative impacts on employees’ wages and workplace benefits.

Defining ‘accessible luxury’: a contentious issue

A central issue in the case is the definition of the accessible luxury market. Initially coined by Coach, the term refers to high-quality products that offer a taste of luxury without the exorbitant price tag. Yet some argue that the FTC’s parameters are overly narrow and do not reflect the market’s fluid nature. Industry players have largely stayed silent on the merger, which may suggest they do not view it as a threat to competition.

FTC’s concerns: more than just handbags

The FTC argues that the merger could have multiple negative effects:

• Higher prices: reduced competition might enable the merged entity to raise prices without fear of losing customers.
• Decreased innovation: with a dominant market position, there may be less incentive to innovate, leading to stagnation in design and quality.
• Limited choices: consolidation could homogenise styles, reducing diversity for consumers.
• Employee impact: the merger could result in job cuts or lower wages and benefits as the company seeks efficiencies.

Tapestry and Capri counter these claims, highlighting the broader competitive landscape, which includes both high-end luxury brands and fast-fashion retailers. They argue that consumers have plenty of alternatives and that the merger would enhance their ability to compete globally.

Contrasting regulatory approaches in fashion

The FTC’s stance contrasts sharply with its approach to other major fashion industry mergers. High-profile acquisitions like LVMH’s $16.2bn purchase of Tiffany & Co. in 2020 and Kering’s $3bn acquisition of Gucci in 1999 faced no significant regulatory obstacles. In the fast-fashion sector, companies like Shein and Temu have expanded rapidly without FTC intervention, despite concerns of anti-competitive practices.

So, why the focus on Tapestry and Capri? The answer may lie in consumer demographics. The accessible luxury market serves a larger, more price-sensitive customer base than the exclusive luxury segment. A merger affecting millions of cost-conscious shoppers is more likely to draw regulatory scrutiny due to its potential widespread impact.

Market realities and potential oversights

While the FTC’s concerns are valid, several factors suggest that the merger might not harm consumers as feared:

• Alternative brands: other brands like Tory Burch, Rebecca Minkoff and Longchamp offer similar products at comparable price points.
• Booming second-hand market: platforms like The RealReal and the Vestiaire Collective provide consumers with additional options to purchase luxury goods at reduced prices.
• Digital disruption: direct-to-consumer brands and online retailers continue to enter the market, enhancing competition and innovation.

Moreover, the concept of accessible luxury is evolving. Today’s consumers are more brand-agnostic and value-conscious, often prioritising sustainability and ethical practices over brand prestige.

Sustainability: an overlooked benefit

An overlooked aspect of the merger is its potential to advance sustainability initiatives within the fashion industry. Tapestry has been a leader in promoting traceability, aiming to track 95% of its raw materials by 2025. The company has partnered with platforms that enhance supply chain transparency, improving accountability and ethical sourcing.

If the merger proceeds, Tapestry could extend these sustainability practices to Capri’s brands, amplifying efforts towards environmental responsibility. In an industry frequently criticised for its environmental impact, this could be a significant positive outcome.

Legal and industry implications

The FTC’s challenge raises important questions about how mergers are evaluated across different market segments. Factors like supply chain dynamics, barriers to entry and consumer behaviour vary widely between luxury, accessible luxury and fast-fashion markets.

A victory for the FTC could set a precedent that makes it more difficult for companies in the accessible luxury space to merge, potentially stifling growth and innovation. Conversely, if Tapestry prevails, it might encourage further consolidation, prompting regulators to rethink their approach.

Looking ahead: a turning point for fashion regulation

The outcome of the FTC’s litigation will have far-reaching implications. It could redefine how regulatory bodies approach antitrust issues in the fashion industry, particularly in markets that impact a broad consumer base. As the lines between luxury, accessible luxury and fast fashion continue to blur, regulators may need to adapt their frameworks to keep pace with market realities.

For now, the fashion world watches and waits. The stakes are high, not just for Tapestry and Capri, but for the entire fashion world.

Prachi Ajmera is counsel and Alaina Cohen is an associate (awaiting bar results) in the New York office of Michelman & Robinson, a national law firm headquartered in Los Angeles, with additional locations in Irvine, San Francisco, Dallas, Houston and Chicago. 

Prachi and Alaina are well-versed in sustainability, ESG and related environmental issues in the luxury goods and fashion industries, as well as the litigation risks arising out of intellectual property rights and the use of digital technology and AI. They can be contacted at 212-730-7700 or [email protected] and [email protected], respectively.