Defining “Accessible Luxury”: How the Tapestry-Capri Merger was Blocked by the FTC
District Judge Jennifer Rochon of the Southern District of New York blocked the pending merger of Tapestry, Inc. and Capri Holdings Limited on October 24, granting a motion for preliminary injunction to the Federal Trade Commission.[1] The proposed $8.5 billion deal would have merged six brands: Tapestry’s Coach, Kate Spade, and Stuart Weitzman; and Capri’s Versace, Jimmy Choo, and Michael Kors.[2] The court found that the merger would reduce competition by giving Tapestry a dominant share of the “accessible-luxury” handbag market, in violation of Section 7 of the Clayton Act.[3]
A central issue of the case was whether the FTC’s proposed market definition of “accessible-luxury” is a relevant antitrust market.[4] The FTC claimed that the defendants compete in a narrow segment of the handbag market, distinct from “mass-market” and “true-luxury” handbags.[5] The defendants argued that “accessible luxury” is not a relevant submarket and that Coach, Kate Spade, and Michael Kors compete with all handbag brands in a highly competitive marketplace.[6]
Judge Rochon found that the FTC properly defined the antitrust market and agreed that Tapestry’s post-merger market share (59%, as calculated by the FTC) would be sufficiently large to be anticompetitive.[7] The court’s approach relied heavily on the Brown Shoe factors: “industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.”[8]
The opinion identified the following characteristics in defining the narrow submarket: priced between $100- $1,000, heavily reliant on discounts and other promotions, typically made in Southeast Asia by third parties, made of “genuine materials” like leather, and recognized as a separate category of handbags by consumers.[9] While highlighting these defining characteristics, the court dismissed several exceptions suggesting more ambiguous boundaries between submarkets.[10] For example, the defendants submitted evidence that their products were often sold for under $100 after discounts.[11] The court also recognized that some “true-luxury” brands also make their bags in Southeast Asia and that the defendants make some of their bags in Europe.[12] Further, the court acknowledged that not all “accessible-luxury” handbags are made of genuine materials, that “mass-market” handbags are sometimes made of leather, and that some “true-luxury” handbags are made of synthetic materials.[13]
The defendants argued that, in reality, these brands compete in a “dynamic and expanding $200 billion global luxury industry” consisting of “hundreds of rival brands, including both established players and new entrants,” where customers cross-shop a “wide range of channels and brands along a vast pricing spectrum when considering what to purchase.”[14] Tapestry also asserted that customers have an abundance of choices and are taking advantage of them.[15]
The defendants announced that they mutually agreed to terminate the merger, as an appeal was unlikely to be settled before the deal’s termination date of February 10, 2025.[16] While reaffirming the fact-intensive nature of market definition questions, the opinion suggests the court’s “openness to very fuzzy boundaries” when defining narrow relevant markets.[17] This outcome carries particular weight amid the fashion industry’s ongoing trend of consolidation.[18] Heightened oversight over how market definitions are drawn may create greater challenges for mergers between luxury brands, requiring parties to reconsider how to frame market competition.[19]
Footnotes
