Tapestry and Capri announce a mega luxury fusion

Tapestry, the fashion company that owns Coach and Kate Spade, said Thursday that it has acquired Capri Holdings, the parent company of Versace and Michael Kors, for about $8.5 billion in cash, as it builds deeper integration into the luxury market.

The deal is a partnership between two big American companies with familiar luxury brands coming together as premium retailers look for growth, amid signs that American consumers are cutting back on discretionary spending. It also comes as the most dominant luxury players compete to snap up brands and expand their investment portfolios.

Combined, the two groups will generate about $12 billion in revenue, bringing brands like Coach, Kate Spade, and Stuart Weitzman together with Versace, Jimmy Choo, and Michael Kors. Once the transaction is complete, they will operate under the name Tapestry.

The move is the boldest effort yet by American fashion directors to build a collection that might be able to compete with the strength of European giants such as LVMH Moët Hennessy Louis Vuitton and Kering.

The CEOs of Tapestry and Capri stressed that the collection will bring their bags, shoes and apparel to a broader consumer base 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 greater exposure in Asia. The two companies said the merger also provided an opportunity to grow their direct-to-consumer business and save $200 million in operating and supply chain costs within three years.

“It represents a very compelling financial opportunity,” said Joanne Krevwezirat, CEO of Tapestry, in an interview. “Through this combination, we see an opportunity to deepen our engagement with premium luxury customers.”

On a call with investors Thursday, analysts focused their questions on how the two companies will integrate and the timeline for the cost savings that will result. The executives emphasized that pooling resources would allow their brands to share digital and marketing capabilities, and logistics chains, often referred to as synergies.

“Synergy is always easier said than done, so obviously this will bear watching,” Simeon Siegel, retail analyst at BMO Capital Markets, said in a note to clients. “But if two companies have synergies, Tapestry and Capri are compatible.”

The executives expressed confidence in their 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,” John D. Idol, CEO of Capri, said in a statement.

Tapestry said it would pour money into marketing and brand building as it tied the two conglomerates together.

“Consumers should see and feel the brand as they always have, and perhaps feel more innovative and relevant when we put them on a digital platform for them to connect,” said Ms. Krevoisrat. “But they shouldn’t feel the brand differently in terms of the brand’s DNA.”

Tapestry shares fell 12 percent in early trade Thursday. Capri shares jumped more than 50 percent.

The company’s chief financial officer said in a statement that the deal would be funded through debt, which Tapestry could “pay back quickly.” In the most recent quarter, tapestry net sales increased 13 percent, while Capri’s revenue in the fourth quarter decreased by 10.5 percent.

“The potential deal comes at a time when luxury is facing a bit of a slowdown, particularly in the North American market,” noted Neil Saunders, managing director of GlobalData, a retail advisory firm. This has put pressure on Tapestry and Capri, both of which are now looking to international markets to boost growth. There is more security in embarking on bold international plans as a larger entity.”

Analysts said the deal gives Tapestry more traction in the luxury goods market.

“Tapestry has long been a ‘luxury house’ along the lines of Kering and LVMH in Europe,” said Craig Johnson, president of consultancy Customer Growth Partners. “But its current brands are close to luxury rather than true luxury. The Capri Tapestry gives a foothold in the realm of true luxury, which although Kors is Capri’s biggest brand, over time Versace may well become the true jewel in the crown.

Thursday’s deal was the latest in a string of mergers and acquisitions in the global luxury industry in recent months. This week, Australian high-end fashion house Zimmerman was bought by private equity firm Advent in a billion dollar deal. Last month, Kering, which owns brands like Gucci and Saint Laurent, said it would Buying a stake in Valentino, by bringing another big fashion label under her tent. And speculation continues about a possible sale of Bergdorf Goodman to LVMH, the world’s largest luxury group by sales. The Fifth Avenue store in Bergdorf is located across the street from the sparkling Tiffany & Company flagship store, which was acquired by jewelry house LVMH for $15.8 billion in 2021.