Coach parent acquires Versace and Michael Kors owner for $8.5 billion as U.S. fashion industry aims to compete with European luxury brand LVMH.

Coach parent acquires Versace and Michael Kors owner for $8.5 billion as U.S. fashion industry aims to compete with European luxury brand LVMH.

American fashion brands

American fashion brands are making waves in the luxury goods industry as they merge together to form giants. However, they face fierce competition from the French titan, LVMH (Louis Vuitton Moët Hennessy), and its billionaire owner Bernard Arnault, who has been in a tug-of-war with Elon Musk for the title of the world’s richest person.

Tapestry, the owner of luxury handbag brands Coach and Kate Spade, recently made a significant consolidation move by acquiring Capri, the owner of fashion brands Versace, Michael Kors, and Jimmy Choo, for a whopping $8.5 billion. The goal behind this merger is to create a new powerful global luxury house to combat the effects of slowed consumer spending caused by inflation and rising interest rates.

This mega-merger is still overshadowed by the largest-ever deal in the sector, where LVMH acquired the iconic jewelry company Tiffany & Co. for nearly $16 billion in October 2020.

LVMH, a French luxury group, was formed through a merger in 1987 and owns 75 brands across various sectors, including fashion houses like Louis Vuitton, Christian Dior, Givenchy, and Fendi, jewelry company Bulgari, cosmetics retailer Sephora, and champagne winery Dom Pérignon. With a staggering market cap of $462 billion, LVMH is led by French business magnate Bernard Arnault.

Arnault, now 74, became chairman and CEO of LVMH in 1989 after acquiring a significant stake in the company. With a net worth of $226.2 billion, his wealth is closely tied to LVMH shares, including a 97.5% stake in Dior. He has been in competition with tech tycoon Elon Musk for the title of the world’s richest person for over a year now. Musk briefly surpassed Arnault in June with a net worth of $228.8 billion but was soon overtaken by the French billionaire.

However, Arnault is not letting the second position affect him. LVMH recently announced its commitment of €150 million ($166 million) to become a premium sponsor of the 2024 Summer Olympics in Paris, further solidifying its position as a leading luxury goods giant.

The luxury retail market suffered from the popped bubble that followed the pandemic-induced buying craze. With inflation and rising interest rates, American consumer spending has significantly slowed down, affecting luxury brands as well. European luxury stocks plummeted by $32.3 billion in May as investors anticipated the impact of a softening U.S. economy. LVMH shares also experienced a dip of over $50 billion after reaching a record-breaking $500 billion market cap.

The acquisition of Capri by Tapestry is a strategic move to gain influence in the European-dominated market and mitigate the effects of the spending slump. Tapestry and Capri aim to boost growth by tapping into international markets.

“Luxury is facing something of a slowdown, especially in the North American market where consumers, even at the higher income end, are starting to curtail spending,” says Neil Saunders, managing director of Global Data. This poses pressure on Tapestry and Capri, both of which are seeking ways to bolster growth in international markets.

The acquisition is expected to be finalized next year, pending approval from Capri shareholders. The deal offers shareholders $57 per share in cash, representing a nearly 65% premium from its previous closing price. Tapestry and Capri, with market caps of $8.2 billion and $6.3 billion respectively, generated a combined $12 billion in global sales and nearly $2 billion in adjusted operating profit in the 2022 fiscal year.

The merger between Tapestry and Capri signifies a significant move in the luxury goods industry as American brands strive to compete with their French counterparts. With the global luxury market experiencing challenges, these mergers aim to create stronger and more resilient entities that can weather the storm. As fashion brands join forces, it will be interesting to see how the overall landscape of luxury goods evolves and who ultimately comes out on top in the battle for dominance.