Tapestry and Capri announce a mega luxury fusion

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

The deal between two big US companies with familiar luxury brands comes as premium retailers look for growth amid signs US 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 like LVMH Moët Hennessy Louis Vuitton and Kering, which owns brands like Gucci and Saint Laurent.

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. The acquisition will help expand Tapestry’s reach in Europe, the Middle East and Africa, while Capri’s 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 ultimately 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, transportation and supply chains, a strategy often referred to as synergy.

“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 branding as it ties 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 about 16 percent on Thursday. Capri shares rose about 56 percent.

The company’s chief financial officer said in a statement that the deal would be funded through debt that Tapestry could “pay off 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 market.

“Tapestry has always aspired to become a ‘luxury house’ along the lines of Kering and LVMH,” said Craig Johnson, president of consulting firm 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.

This deal was the latest 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 said he would Buying a stake in Valentinoby 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 Bergdorf department store on Fifth Avenue in New York is located across the street from the sparkling flagship store of Tiffany & Company, the jewelry house that LVMH bought for $15.8 billion in 2021.