Snapshot: Tapestry, Capri & How to the Define “Accessible Luxury” Handbag Market

This week, the Federal Trade Commission filed suit to block the $8.5 billion deal that would see Tapestry acquire Capri Holdings, a merger that would bring together Coach, Stuart Weitzman, and Kate Spade (which are owned by Tapestry) with Capri’s Michael Kors, Versace, and Jimmy Choo brands. In the administrative complaint that it filed on April 22, the FTC refers to “accessible luxury” at least 68 times – a count that does not include any time the term may have been mentioned in the redacted sections (and there are plenty of those).

According to the FTC, the deal – if allowed to proceed – would “give Tapestry a dominant share of the ‘accessible luxury’ handbag market,” which it claims was coined by New York-based Tapestry “to describe quality leather and craftsmanship handbags at an affordable price.”

The Lina Khan-led FTC’s focus on “accessible luxury” is significant, as that is what it is defining as the relevant market – i.e., the market in which competition would be stifled should the deal come into fruition. According to the FTC, “By combining three of the top players in the market for ‘accessible luxury’ handbags in the United States – including the top two (Coach and Michael Kors) by far – the Proposed Acquisition will significantly increase concentration and result in a highly concentrated market, making the proposed acquisition presumptively unlawful under controlling caselaw and the Merger Guidelines.”

What the regulator is looking to do here is to frame the market narrowly – and distinguish it from what it calls the “luxury,” “true luxury,” “high-end luxury” or “European luxury” segment – in order to fashion itself a better chance of success of showing that the merger would have anticompetitive effects. Such a narrow focus is critical to the FTC’s case, in light of the size of the players in the “true luxury” segment. After all, even if combined, Tapestry and Capri are no match for giants like LVMH, Kering, etc.

> Case in point: LVMH generated 86.2 billion euros ($92 billion) in revenue in 2023, with the U.S. being one of its largest market (responsible for 25 percent of annual sales), compared to the $6.6 billion in 2023 revenue generated by Tapestry and $5.6 billion for Capri.

The question we have posed from the outset – and the one that counsel for Tapestry and Capri will also certainly raise – is whether this definition of the market is the appropriate one, or is it too narrowly construed? The case will likely come down to one that sees the parties arguing over market definition. Tapestry and Capri “ignore the accessible luxury market and say they compete with LVMH, et al,” per Brian Quinn, a professor at Boston College Law School, who focuses on corporate law and transaction structuring. And the government “will point to the [companies’] own internal market definitions. It is the old Pepsi/water argument again.”

The Wall Street Journal demonstrated skepticism this week about how the scope of the FTC’s market definition will pan out, stating that in furtherance of its effort to gauge the size of the “affordable luxury” market and the market share held by Coach and Michael Kors (an estimated 53% share of the North American affordable luxury bag market in 2022), investment management firm Bernstein’s “own process of arriving at the ‘affordable luxury’ definition shows just how slippery the term is: It narrowed down luxury bag brands by manually excluding certain brands, such as Hermès.” The WJS noted that both Coach and Michael Kors market/sell handbags with price tags that “overlap with high-end luxury brands and with those [that are] not considered luxury, such as Cole Haan.”

One need not look further than the “The US Luxury Boom 2024” report from YouGov to find examples of how Coach and Michael Kors are often lumped into the “true luxury” category. In its recently released report, YouGov found that based on surveys of American consumers, Coach ranked highly among the brands from which consumers purchased “luxury goods in the past 12 months,” while Michael Kors was among the top “luxury goods” brands that Americans are thinking about buying the next 12 months.

How these brands describe themselves is also intriguing. It is not uncommon, for instance, to see Michael Kors describe itself as a “luxury brand.” The company’s website prominently proclaims the brand’s “luxury” status, and the word “luxury” is used 9 times on the company’s “About” page, alone. At the same time, the company readily refers to itself as a purveyor of “luxury” goods in trademark complaints that it has waged over the years. (Here is one example.)

Another interesting aspect of the market that the FTC does not broach is lack of bright lines in the fashion market. Long gone are the days where brands are confined to one price bracket – thanks, in part, to their ever-expanding arsenal of products and the rise of collaborations. (Just this week, for instance, ultra-luxury brand Hermes spoke to the range of prices for its own offerings, with EVP Eric du Halgouet saying that “strong demand from wealthier clients offset fewer store visits from clients seeking more affordable silk items and fashion accessories.”)

There is also the role of resale, which is an increasingly large and robust market that muddies the waters in terms of clean distinctions on the pricing front. Consumers can snap up “true luxury” handbags for a fraction of their initial resale price thanks to the mainstreaming of the secondary market.

In an interview this week, Tapestry CEO Joanne Crevoiserat said the company “see[s] the FTC as fundamentally misunderstanding the marketplace and the way consumers shop today as well as the impact of this deal on employees and workers in our industry.” (The focus on employees is a nod to the FTC’s argument that Tapestry and Capri “compete on metrics that affect other constituencies, including their thousands of employees,” which would be negatively impacted if the companies come under the same ownership umbrella.)

Meanwhile, Capri Holdings said that it “strongly disagrees with the FTC’s decision. The market realities, which the government’s challenge ignores, overwhelmingly demonstrate that this transaction will not limit, reduce, or constrain competition.”

The case is In the Matter of Tapestry, Inc. and Capri Holdings Ltd., 9429.