Tapestry, the fashion company that owns Coach and Kate Spade, said Thursday it has acquired Capri Holdings, the parent of Versace and Michael Kors, for about $8.5 billion in cash, while the combine- along with the luxury market is rapidly gathering.
The deal is a partnership of two major American companies with familiar luxury brands coming together as high-end retailers seek growth, amid signs that US consumers are holding back on discretionary spending . It also comes as the most dominant luxury players are scrambling to acquire brands and expand their portfolios.
Combined, the two groups will generate about $12 billion in revenue, bringing brands such as Coach, Kate Spade and Stuart Weitzman together with Versace, Jimmy Choo and Michael Kors. Once the transaction is complete, they will operate under the Tapestry name.
The move is the boldest effort by American fashion executives to build a collective that can compete with the power of European giants such as LVMH Moët Hennessy Louis Vuitton and Kering.
The chief executives of Tapestry and Capri emphasized that the combination will bring their handbags, shoes and apparel to a wider base of consumers and allow them to tap into more resources. For Tapestry, the acquisition will help expand its reach in Europe, the Middle East and Africa, while the Capri brands will gain more exposure in Asia. The companies said the merger also presented an opportunity to increase their direct-to-consumer businesses and save $200 million in operating and supply-chain costs over three years.
“This represents a very strong financial opportunity,” Joanne Crevoiserat, Tapestry’s chief executive, said in an interview. “We find in this combination an opportunity to deepen our engagement with high end luxury customers.”
In a call with investors Thursday, analysts focused their questions on how the two companies will integrate and the timeline for cost savings that will result. Executives emphasized that combining resources will allow their brands to share capabilities in digital and marketing, transportation and supply chains, often referred to as synergies.
“Synergies are always easier said than done, so this will obviously bear tracking,” Simeon Siegel, a retail analyst at BMO Capital Markets, said in a note to clients. “But if ever there were two companies that could enjoy synergies, Tapestry and Capri are aligned.”
Executives expressed confidence in the ability to integrate their brands.
“By joining Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while maintaining the unique DNA of our brands,” said John D. Idol, chief executive of Capri, in a statement.
Tapestry said it will pour money into marketing and brand building as it merges the two conglomerates.
“Consumers should see and feel the brand as they always have, perhaps feeling a little more innovative and relevant as we put them on a digital platform to communicate,” said Ms. Crevoiserat. “But they shouldn’t feel the brand is different in terms of brand DNA.”
Tapestry’s stock fell 12 percent in early trading on Thursday. Capri’s shares rose more than 50 percent.
The deal will be financed through debt, which Tapestry can “rapidly repay,” the company’s chief financial officer said in a statement. In its most recent quarter, Tapestry’s net sales rose 13 percent, while Capri’s revenue in its most recent quarter fell 10.5 percent.
“The potential deal comes at a time when luxury is facing a slowdown, particularly in the North American market,” said Neil Saunders, the managing director at GlobalData, a retail consulting firm. “This has put pressure on Tapestry and Capri, both of which are now looking to international markets to fuel growth. There is more security in embarking on bold international plans as a larger entity.”
The deal also gives Tapestry more cachet in the luxury market, analysts said.
“Tapestry has long aspired to be a bona fide ‘house of luxury'” like Kering and LVMH in Europe, said Craig Johnson, the president of consultancy Customer Growth Partners. “But its current brands are closer to luxury than in true luxe. Capri has given Tapestry a toehold in the true luxe world, that even though Kors is Capri’s biggest brand, over time Versace could become the real ‘jewel in the crown.’
Thursday’s deal is the latest in a series of mergers and acquisitions in the global luxury industry in recent months. This week, upmarket Australian fashion house Zimmerman was bought by private equity firm Advent in a deal worth $1 billion. Last month, Kering, which owns brands such as Gucci and Saint Laurent, said it would bought a stake in Valentino, bringing another big fashion brand under its tent. And speculation continues to swirl over the possible sale of Bergdorf Goodman to LVMH, the world’s largest luxury group by sales. Bergdorf’s Fifth Avenue department store is across the street from the glittering flagship boutique of Tiffany & Company, the jewelry house that LVMH bought for $15.8 billion in 2021.
