FTC v. Tapestry: A Case Over M&A in the “Accessible Luxury” Market

The Federal Trade Commission (“FTC”) made headlines in April when it issued an administrative complaint and authorized a lawsuit in a New York federal court in furtherance of an effort to block a proposed deal between Tapestry Inc. and Capri Holdings. According to the consumer protection-focused regulator, the $8.5 billion deal, which was first announced in August 2023, “seeks to combine three close competitors – Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand.” If allowed, the FTC alleges that the merger “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, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price.”

At the heart of the case are questions of competition and consumer harm, but more specifically, the case centers largely on how the FTC defines the relevant market. According to the regulator, “Coach, Kate Spade, and Michael Kors brands compete to sell ‘accessible luxury’ handbags” in a “distinct market” that has “peculiar characteristics, as well as distinct prices and consumers and unique production facilities” that distinguishes it from the markets for other types of handbags.

In early responses, both Tapestry and Capri have pushed back against the FTC’s narrow framing of the market in which they operate, arguing, among other things, that the regulator is taking too constrained a view and in doing so, ignoring the “market realities” at play. While focused squarely on entities in fashion, the FTC’s case – one of the latest demonstrations of its quest to block “serial acquisitions” and roll-up strategies that it claims will lead to consolidation and chip away at competition – will likely have implications that reverberate beyond the immediate fashion market, namely for “serial acquirers” that are looking to merge.

As the closely-watched matter plays out in an adjudicative proceeding, as well as a case in the U.S. District Court for the Southern District of New York (“SDNY”), we have put together a timeline of notable filings (that we will continue to update regularly) in order to help you to stay abreast of substantive developments …

Sept. 10, 2024

The first couple of days of the parties’ bench trial have seen the two sides argue over the impact of the potential merger between Tapestry and Capri, with a focus on the definition – and workings – of the “accessible luxury” handbag market.

> Arguments from the FTC: The FTC focused on the potential damage that would be caused if Tapestry and Capri merger, namely, by raising handbag prices in the “accessible luxury” handbag market for “the working and middle class women of America.” The FTC defines the relevant market in the case as the “accessible luxury” handbags, namely, those with price tags that range from $100 to $999. The regulator’s legal team, which is being led by Nicole Lindquist, cited internal emails and research decks from the companies that showed their close attention – and efforts – to raising prices on the handbags coming from the likes of Coach and Michael Kors (including by cutting down on discounts for the latter), which they argue would only escalate following a merger.

Such a merger would be particularly problematic for the American market, Lindquist asserted, as the Coach, Kate Spade and Michael Kors brands account for “more than half of the [domestic] accessible luxury handbag market.” She argued that “when the biggest, closest competitors merge, that is bad for consumers.”

> Arguments from Tapestry and Capri: Tapestry and Capri’s lawyers reiterated the companies’ recurring argument that the FTC’s case does not reflect the nuanced reality of the handbag market. “The commercial reality is that customers have a Gucci bag lined up next to a Kors bag, lined up next to a Calvin Klein bag,” Latham & Watkins’ Lawrence Buterman, who is representing Tapestry, told the court.

Counsel for the two fashion groups also took issue with the government’s definition of the “accessible luxury” market, stating that the FTC’s characterization lacks precision and highlighting its use of words like “typically” to describe the materials used (“typically” leather), the quality of the bags (“typically” higher quality), and the customer base for the offerings “(typically” consumers with household incomes of up to $80,000).

Meanwhile, Capri CEO John Idol testified in court, saying that competition in this segment of the market is robust and in fact, it is the reason that the Michael Kors brand has struggled in recent year. “The pie started to get split between a lot of people,” Idol stated. “We’re getting squeezed from the top and from the bottom, as everybody wants a piece of the handbag market.” Against that background, Idol, who previously held the role of CEO of Michael Kors, said that the company “worked very hard to get the brand heat back for Michael Kors” and that they view Kors as competing in the “total handbag market” and not purely in the “accessible luxury” segment. (This reflects testimony from Mr. Kors, himself, who said in a deposition that his eponymous label competes with brands ranging from Tumi and Telfar to Louis Vuitton and Hermès at resale.)

After Idol, Tapestry CEO Joanne Crevoiserat took the stand to further chip away at the regulator’s definition of the relevant market, saying, “I don’t think anybody can agree on what [accessible luxury] even means.” She further shutdown the FTC’s biggest claim: that consumers will be forced to pay higher prices if the merger is allowed to proceed: “Customers have hundreds of choices. They can turn anywhere,” citing competition from brands like Ralph Lauren, Veronica Beard, Telfar, and even athleisure giant Lululemon, thanks to its uber-popular cross-body bag.

Sept. 9, 2024

The parties’ bench trial kicked off before Jennifer Rochon of the U.S. District Court for the Southern District of New York and is expected to last for a week and a half.

Aug. 30, 2024

Tapestry and Capri filed a proposed findings of fact and conclusions of law brief, arguing that the proposed deal will actually enhance competition and deliver significant consumer benefits, and that the FTC’s allegations are based on flawed assumptions and economic models that do not reflect reality.

The case is Federal Trade Commission v. Tapestry, Inc., 1:24-cv-03109 (SDNY).

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