A federal judge moved on Thursday to block a merger of the fashion companies that own the Coach, Kate Spade, Michael Kors and Versace brands, ruling that the tie-up would “substantially lessen competition” among makers of accessible luxury handbags.
The Federal Trade Commission sued to block the $8.5 billion deal last spring. The case was a rarity in the fashion world, given how competitive the industry is and the relatively low barriers to enter.
Judge Jennifer L. Rochon, in the Southern District of New York, seemed to accept the trade commission’s argument that tens of millions of Americans could end up paying more for handbags and other fashion items because the combined company would no longer have the incentive to compete on price.
“Antitrust has come into fashion,” Judge Rochon wrote in her ruling.
When Tapestry, the parent company of Coach and Kate Spade, announced its acquisition of Capri Holdings, owner of Versace and Michael Kors, in August 2023, it was seen as a sign of continuing consolidation in the luxury fashion market.
Tapestry said it planned to appeal the ruling, which it described in a statement as “disappointing and, we believe, incorrect on the law and the facts.” The company reiterated its argument that the retail industry is “intensely competitive and dynamic, constantly expanding and highly fragmented.”
Judge Rochon granted a preliminary injunction that prevents the acquisition from moving forward while the F.T.C. investigates the deal in its administrative court.
The ruling is a win for Lina Khan, the head of the Federal Trade Commission, who has come under fire for her aggressive approach to antitrust and has become a lightning rod in the presidential election. The lawsuit had been fodder for her detractors, who argued that the F.T.C.’s time was better spent protecting industries other than handbags.
At the center of the F.TC’s concerns were “accessible luxury” accessories — an industry term for the less expensive wares sold by Coach, Kate Spade and Michael Kors.
Tapestry and Capri argued that accessible luxury was not a defined category but, rather, a “generalized concept.” Judge Rochon pushed against this, arguing in her ruling that the accessible luxury handbag category seemed to have traits that set it apart from true luxury brands.
Most accessible luxury handbags, including Coach and Michael Kors, the judge said, are more likely to be produced in Southeast Asia. The court also determined that the category was defined by bags with an entry price of about $100 and “heavily rely on discounting.”
Shares of Tapestry were up 12 percent in after-hours trading on Thursday, while shares of Capri were down about 47 percent.
In her ruling, Judge Rochon rejected the notion that the price of handbags wasn’t a suitable subject for an antitrust case.
“Downplaying the importance of handbags as nonessential discretionary items that consumers can simply choose not to buy if the price is too high ignores that handbags are important to many women, not only to express themselves through fashion but to aid in their daily lives,” she wrote.
The F.T.C. celebrated the ruling.
“Today’s decision is a victory not only for the F.T.C., but also for consumers across the country seeking access to quality handbags at affordable prices,” Henry Liu, director of the agency’s Bureau of Competition, said in a statement.
“The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American public,” he added.
Neil Saunders, a retail analyst and managing director at the consultancy GlobalData, said the decision would “come as a blow to both companies,” but he indicated that he did not believe the reasoning of the ruling was warranted.
“We still maintain our view that the blocking of the merger has been made on grounds that do not reflect the realities of the market,” Mr. Saunders said in a statement.
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