Competitive dynamics in focus as US tries to stop Tapestry-Capri merger

By Siddharth Cavale

NEW YORK (Reuters) -The U.S. Federal Trade Commission urged a federal judge in New York to block Tapestry (NYSE:TPR )'s $8.5 billion merger with rival handbag maker Capri Holdings (NYSE:CPRI ) at a trial on Monday, arguing it will eliminate fierce competition in the market for "accessible luxury."

The FTC argues the merger announced in August 2023 would eliminate head-to-head competition between Tapestry's Coach and Kate Spade brands and Capri's Michael Kors' brands, which has resulted in better prices, discounts and promotions for consumers and wages and workplace benefits for employees.

The deal would also give Tapestry a dominant share of the "accessible luxury" handbag market, controlling over 50% of it once the deal is completed. The regulator defined the "accessible luxury" market as handbags sold between $100 and below $1,000, which forms most of Coach and Kors' lines.

FTC Chief Trial Counsel Nicole Lindquist told U.S. District Judge Jennifer Rochon in a packed courtroom that the brunt of a merger would be borne by "the working and middle class women of America."

In its questioning of Capri CEO John Idol, the FTC showed evidence of emails between Idol and his deputies, including Jaryn Bloom, president of North America retail for Capri's Michael Kors brand, asking how Coach's outlets were keeping prices down.

"Look at these prices!" Idol wrote in the emails, urging his deputies to come up with better designs and solutions to compete against Coach. In another email produced by the FTC, Idol asks to talk to a deputy about the design of a Coach handbag.

"They monitor and react to each other's every move," said Lindquist, the FTC lawyer.

Tapestry, in response, argues that the U.S. handbag market is highly fragmented and competitive with low barriers to entry and fickle consumer tastes. It also said FTC's analysis misunderstands the handbag marketplace and the way consumers shop and that "accessible luxury" is a notional concept.

Tapestry lawyer Lawrence Buterman said the FTC's argument is divorced from the commercial reality of the handbag market where customers are inundated with choice.

"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," he said.

A lawyer for Capri later told the court that Kors had been losing relevance with shoppers since it peaked in 2016 and that growing competition drove the average price for a Kors handbag to $92, below the FTC's threshold of accessible luxury.

The FTC has sued to block several mergers over the past year, making for a busy schedule.

The antitrust regulator is currently fighting to block supermarket chain Kroger (NYSE:KR )'s acquisition of Albertsons (NYSE:ACI ) in a federal court in Portland, Oregon and has also sued to block the $4 billion acquisition of Mattress Firm by mattress manufacturer Tempur Sealy (NYSE:TPX ) International.



Monday's trial is expected to last for a week and a half.

The trial follows the merger's approval by antitrust regulators in Japan and the European Union earlier this year.

Source: Investing.com