American Luxury Giants Tapestry and Capri Join Forces to Compete Against European Leaders

When it comes to luxury, it isn’t easy competing against European giants like LVMH, Richemont and Kering. But the stress on American luxury brands has grown in recent years — with Louis Vuitton-owner LVMH pushing further into North America with its 2021 purchase of Tiffany & Co.

To compete, Tapestry (NYSE:TPR) — the owner of Coach — is acquiring the owner of Michael Kors and Jimmy Choo, Capri Holdings (NYSE:CPRI), for $8.5B.

• This combines Versace, Jimmy Choo, Michael Kors, Kate Spade and Coach under one parent company.
• Together, the two will have over $12B in revenue with a potential $200M in merger savings — but still just a fraction of LVMH’s 2022 revenue of $84B.

How a deal helps Tapestry compete: Bloomberg Columnist Andrea Felsted says, “Tapestry has a strong track record in reviving tired names.” They revamped Coach and Kate Spade’s image by reducing discounts, limiting product variety and collaborating with high-profile celebrities.

Both companies “mostly operate in the riskier premium part of the market, not at the very top echelons of luxury” — an area that’s under pressure…

Luxurious, but not quite luxury

In recent years, the luxury sector received a boost from a combination of built-up pandemic savings and post-pandemic spending. But strong returns in the industry could be harder to come by as consumer shopping normalizes.

• Luxury giants have been warning about slowing spending in two of the largest luxury markets this year, the US and China.
• “The global mood is not one of revenge buying like we saw in 2021 and 2022,” — per LVMH’s CFO Jean-Jacques Guiony (FT).

Just how much consumers tighten their purse strings will also depend on who these luxury brands cater to. Bain Partner Federica Levato sees some brands growing 30% and others falling 30% — with categories like streetwear, small bags and entry-level sneakers targeting “aspirational consumers” impacted more by inflation.

Then there are brands with long waiting lists like Hermès (OTC:HESAY) — which “blows the whole luxury goods industry out of the water” and hasn’t seen a decline in US sales (FT).