Luxury brands are looking to respond to spending slowdowns by way of M&A activity, according to industry reports. The deceleration in spending has already prompted some consolidation for online players, Axios wrote late last year, noting that more deals are “likely to follow … driven by the pressures of profitability, more so than anything else.” At the same time, Bain stated in its Luxury Goods Worldwide Market Study early this year that “we should see a new season of M&A born of the necessity to address key challenges of the industry,” including (but certainly not limited to) “support [for] category growth [and] expansion into new geographies.”
Still yet, Goldman investment banker Cosmo Roe told WWD this spring that “potentially larger-scale consolidation” may be on the horizon in the luxury goods segment “as people think about how to shift their business exposure and how to play the complicated dynamics between China, Europe and the U.S. from a consumer demand perspective, which … makes it a very dynamic market right now.”
For any deals that are slated to impact the U.S. market in a meaningful way, chances are, the Federal Trade Commission (“FTC”) might not make it easy. One need not look further than the potential merger between Coach-owner Tapestry and Michael Kors’ parent Capri Holdings, which is currently in the midst of FTC-initiated litigation.
As we covered in last month’s Deep Dive, the FTC issued an administrative complaint and authorized a lawsuit in a New York federal court in April in furtherance of an effort to block a proposed deal between Tapestry and Capri. According to the FTC, the $8.5 billion deal “seeks to combine three close competitors – Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand” – and thus, “would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands” and “give Tapestry a dominant share of the ‘accessible luxury’ handbag market” in the U.S.
