Tapestry, the fashion company that owns Coach and Kate Spade, said on Thursday it had bought Capri Holdings, the parent of Versace and Michael Kors, for about $8.5 billion in cash as consolidation in the luxury market accelerates.
A deal between two major U.S. companies for familiar luxury brands has high-end retailers expecting growth amid signs that U.S. consumers are pulling back in discretionary spending. This comes with the most dominant luxury players eager to pick up brands and expand their portfolios.
Together, the two groups will bring in about $12 billion in revenue, along with brands like Coach, Kate Spade and Stuart Weitzman, along with Versace, Jimmy Choo and Michael Kors. Once the transaction is complete, they will operate under the name Tapestry.
The move is a bold move by American fashion executives to create a conglomerate that can compete with the might of European giants such as LVMH Moët Hennessy Louis Vuitton and Kering, which owns brands such as Gucci and Saint Laurent.
The chief executives of Tapestry and Capri emphasized that the combination would bring their handbags, shoes and apparel to a wider consumer base and allow them to acquire more resources. The acquisition will help expand Tapestry’s reach in Europe, the Middle East and Africa, while giving Capri’s brands greater exposure in Asia.
The companies said the merger will allow them to grow their direct-to-consumer businesses and save $200 million in operating and supply chain costs over three years.
“This represents a very compelling financial opportunity,” Joan Crevoseret, Tapestry’s chief executive, said in an interview. “Through this combination, we have identified an opportunity to deepen our engagement with luxury customers.”
On a call with investors Thursday, analysts focused their questions on how the two companies would integrate and the timeline for the resulting cost savings. Executives stressed that pooling resources would allow their brands to share digital and marketing capabilities, transportation and supply chains, often referred to as synergies.
“Synergies are always easy to make, so this clearly bears watching,” Simeon Siegel, retail analyst at BMO Capital Markets, said in a note to clients. “But if the two companies are ever to enjoy synergies, Tapestry and Capri will be aligned.”
Executives expressed confidence that their brands could be integrated.
“By joining Tapestry, we will have greater resources and capabilities to accelerate our global expansion while preserving the unique DNA of our brands,” said John D. Idol, Capri’s chief executive, said in a statement.
As Tapestry merged the two companies, it said it would pour money into marketing and branding.
“Consumers want the brand to look and feel as it always has, and by putting them on a digital platform it can feel a little more innovative and relevant so they can relate,” Ms Crevoisserat said. “But they shouldn’t perceive the brand differently based on the brand’s DNA.”
Tapestry’s stock fell nearly 16 percent on Thursday. Shares of Capri rose nearly 56 percent.
The deal will be financed through debt, which Tapestry can “quickly 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 fell 10.5 percent in its most recent quarter.
“The potential deal comes at a time when luxury, particularly in the North American market, is facing a recession,” noted Neil Sanders, managing director of Global Data, a retail consulting firm. “This has put pressure on Tapestry and Capri, both of which are now looking to international markets to drive growth. As a large company there is more security in launching bold international projects.
Analysts said the deal gives Tapestry more savings in the luxury market.
Nada has long been eyeing a “luxury house” like Kering and LVMH, said Craig Johnson, head of consulting at Client Growth Partners. “But its current brands are luxury rather than true luxury. Capri gives the tapestry a grip on the real luxury world, and while Kors Capri is the biggest brand, over time Versace may be the real ‘jewel in the crown.’
The deal is the latest in recent months for the global luxury sector. This week, high-profile Australian fashion house Zimmerman was acquired by private equity firm Advent In a deal worth $1 billion. Last month, Kering said Buy shares in ValentinoBringing another big fashion label under its tent.
Speculation continues to swirl that Bergdorf Goodman could be sold to LVMH, the world’s largest luxury group. The Bergdorf department store on Fifth Avenue in New York is across the street from the glittering flagship boutique of Tiffany & Company, the jewelry house that LVMH bought for $15.8 billion in 2021.