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you. From

1:29

Wondery, I'm David Brown, and this is Business Wars

1:31

Daily on this May 3rd. Happy Friday, everybody. We

1:33

told you a few weeks back about a

1:36

lawsuit in the world of luxury goods. Hermes

1:38

was being sued because it made access to

1:40

its legendary Birkin bag so exclusive. Well,

1:43

today we have another luxury lawsuit, this one

1:45

brought by the U.S. government. It

1:48

all started last summer when Tapestry, Inc., that's

1:50

the name behind brands like Coach and Kate

1:52

Spade, said it would buy Capri Holdings

1:54

for $8.5 billion. Capri

1:57

is the home of brands like Michael Kors for

1:59

$7 million. Saatchi and Jimmy Choo. The

2:02

acquisition would bring all those luxury names under

2:04

one roof, names that, when combined, generate

2:07

$12 billion in annual sales.

2:11

The proposed acquisition came at an interesting

2:13

time in the world of luxury retail.

2:15

Put simply, while spending on high-end goods

2:17

hit increase significantly in Europe and Asian

2:20

markets, it had slowed considerably in North

2:22

America. In the second quarter

2:24

of last year, LVMH, that's the conglomerate

2:26

behind Louis Vuitton, saw a

2:29

double-digit sales growth in Europe and Asia,

2:31

while sales in the U.S. fell. Prada

2:33

saw a 25 percent growth in

2:35

sales in the Asia-Pacific market in

2:38

the first half of 2023, while

2:40

sales dropped 1 percent in the

2:42

Americas. And for the parent

2:44

of Cartier, Chloe, and Mont Blanc, the

2:47

same old song. Sales were strong in

2:49

other markets, but in the U.S. they stalled. Enter

2:52

Tapestry and Capri, two U.S.-based parent

2:54

companies hoping to turn the tides of

2:56

the American luxury market. And

2:58

to compete with the big dogs, both companies needed to beef

3:00

up. See, LVMH pulled in 80

3:03

billion euros in revenue in 2023. Compare

3:06

that to Tapestry's net sales of 1.62 billion. And

3:10

yeah, you can see why the company wanted to

3:12

phone a friend, or in this case, a former

3:14

rival. But alas, those plans

3:17

may come grinding to a halt. Last

3:19

week, the U.S. Federal Trade Commission

3:21

sued to block the deal, saying it

3:23

would eliminate quote direct head-to-head competition

3:25

end quote between the two companies. In

3:28

a statement, the FTC said the merger could

3:30

reduce employee wages and benefits. Antitrust

3:33

experts appeared puzzled by news of the

3:35

suit. That's because the U.S. luxury market

3:38

is highly fragmented, and new

3:40

names pop up every year. So

3:42

in theory, a few big names merging together

3:44

shouldn't be an issue in a market that's

3:46

already and will likely remain highly competitive in

3:48

the first place. But

3:50

alas, to a proposed deal, the FTC

3:53

has said not so fast. It

3:55

appeared to be stuck on a certain term,

3:57

according to the Wall Street Journal, affordable Luxury

4:01

When you look at the North American market

4:03

for bags in 2022, Coach from

4:05

Tapestry and Michael Kors from Capri command

4:08

17% of the market combined.

4:11

Narrow that down to luxury bags though and the

4:13

market share expands to 26%. Then

4:16

narrow that down again to affordable luxury

4:19

bags and the market share

4:21

for the two blossoms to 53% and

4:24

that, according to the FTC, is far too

4:26

high of a market share, hence the lawsuit.

4:29

Whatever affordable luxury means to brands these days,

4:31

it certainly means something significant to the FTC

4:34

and that's the body calling the shots. While

4:36

the proposal has already cleared regulations in

4:39

Europe and Japan, it's

4:41

looking less and less rosy over here in

4:43

the States, which means when it comes to

4:45

this merger, or this lack of a merger,

4:48

Tapestry and Capri may have

4:50

fumbled the bag. From

4:55

Wondery, this is Business Wars Daily. I'm your

4:57

host David Brown, written and produced by Jessica

4:59

Yomoff. Our executive producers are

5:01

Tina Rubio and Marshall Lewis. Thank

5:26

you. Support

5:36

for this podcast and the following

5:38

message come from Coriant. Coriant provides

5:40

wealth management services centered around you.

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They focus on exceeding your expectations

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and simplifying your life. Coriant has

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preserve their wealth, and provide for

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