The antitrust trial between Tapestry and Capri, two fashion conglomerates seeking to merge, is currently underway in Manhattan. The outcome of this trial will have significant implications for the fashion industry and consumers alike. The Federal Trade Commission (FTC) filed a lawsuit to block the $8.5 billion deal, arguing that it would reduce competition in the handbag market and result in higher prices for consumers.
One of the key arguments made by the FTC is that the merger would bring together Tapestry’s Coach and Capri’s Michael Kors, two brands that it considers direct competitors. The FTC contends that this consolidation would limit consumer choice and lead to higher prices. However, Tapestry and Capri have countered this argument by highlighting the intense competition in the handbag industry. They claim that the merger would enable them to better compete with other retailers and brands, ranging from fast-fashion companies to luxury labels.
The definition of Coach and Michael Kors’ true competitors has been a major point of contention in the trial. The FTC has categorized the relevant market as “accessible luxury,” a term used by Tapestry to describe its offerings. However, Tapestry and Capri argue that the field of rivals is expanding to include brands at various price points. They point to the rise of new players like Lululemon, which has entered the handbag market with its popular belt bags. Tapestry’s CEO, Joanne Crevoiserat, emphasized the need to attract consumers who have a wide range of spending options, from buying yoga pants to going out to dinner.
The trial has also featured industry data and internal documents to support both sides’ arguments. Market research and consumer surveys have been presented to demonstrate the competitive landscape of the handbag market. Chanel’s head of merchandising for accessories and leather goods, Suwon Yang, testified that Coach, Kate Spade, and Michael Kors have never been mentioned as competitors in customer surveys or internal discussions at Chanel. She emphasized the craftsmanship and exclusivity of Chanel’s bags, which set them apart from other brands.
The FTC has raised concerns about the potential harm to consumers if the merger is approved. Economist Loren Smith, a key witness for the FTC, argued that the combined company would have significant market power, leading to price increases and lower product quality. He estimated that consumers could face an average price increase of 15% to 17% and a decrease in product quality. He also highlighted the high profit margins in the handbag industry, suggesting that the risk of losing customers to other brands would be minimal for the merged entity.
Tapestry and Capri’s attorneys have challenged Smith’s calculations and methodology, claiming that he did not account for changing consumer habits and the rise of the secondhand market. They also argued that he lacked sufficient knowledge of the handbag market, as evidenced by his limited personal experience with handbag purchases.
During her testimony, Tapestry’s CEO, Joanne Crevoiserat, emphasized the company’s goal of reaching more customers and putting more handbags in their hands. She highlighted the diverse portfolio of brands that Tapestry owns, each catering to different customer preferences and occasions. Crevoiserat also addressed concerns about potential price increases, stating that Tapestry’s operating model allows for cost savings through scale, which can be passed on to consumers. She emphasized the importance of supporting and growing all the brands within the merged entity, including Capri’s weaker-performing brands.
The trial is ongoing, with more key witnesses expected to testify. The outcome of this case will have far-reaching implications for the handbag industry and consumers. It will determine whether Tapestry and Capri can proceed with their merger and shape the competitive landscape of the fashion industry. Investors are closely watching the trial, as it could impact the stock prices of both companies.
