The FTC filed suit to block Tapestry, Coach’s parent company, from acquiring Capri Holdings

Pedestrians walked past a Coach store and a Michael Kors store.

Scott Olson

The US Federal Trade Commission on Monday filed suit to block the $8.5 billion acquisition Capri Holdings From the parent company of Coach and Kate Spade, Tapestry.

The regulator’s move puts at least a temporary hold on a deal that would combine two major names in U.S. luxury retail and bring six fashion brands into one company: Tapestry’s Coach, Kate Spade and Stuart Weitzman and Capri’s Versace, Jimmy Choo and Michael Kors. . The deal allows luxury brands to better compete with European luxury brands such as Burberry and LVMH’s Louis Vuitton.

In a press release, the Federal Trade Commission said the combined company would harm consumers and employees. Tapestry and Capri are said to “currently compete in everything from apparel to eyewear to footwear.”

“Tapestry seeks to acquire Capri to become a serial acquirer and strengthen its position in the fashion industry,” Henry Liu, director of the FTC’s Bureau of Competition, said in the release. “Handbags, and hourly workers will lose the benefits of higher wages and a more favorable work environment.”

Tapestry believes that federal agencies “fundamentally misunderstand the marketplace and how consumers shop.”

The company said in a statement that it must win business from a growing number of customers who shop across brands, channels and price points.

“In addition, Tapestry and Capri face competitive pressure from both low- and high-value products,” the company said. “In bringing this case, the FTC chose to ignore the reality of today’s dynamic and expansive global luxury goods industry, valued at over $200 billion.”

Capri echoed that argument in its own statement, saying consumers have “hundreds of handbag options at every price point across all channels with low barriers to entry.”

Both Tapestry and Capri said they would fight the deal in court, with Tapestry saying it would “accelerate the transaction in 2024.”

Tapestry announced the proposed acquisition in August. The transaction is expected to close in 2024. The deal has received approval from European and Japanese regulators but is still awaiting approval from US officials – the only pending regulatory approval, according to a company financial filing earlier this month.

When Tapestry announced the deal, CEO Joanne Crevoisrat told CNBC that the combined company would be able to reach more customers around the world. The two companies will have combined annual revenues of more than $12 billion and operations in more than 75 countries.

Both Tapestry and Capri are under pressure as consumers become more discerning about discretionary spending. However, Capri is particularly vulnerable because it relies more on department stores and other wholesale retailers than Tapestry.

Under Crevoiserat, Tapestry increased awareness of the Coach brand, attracted younger shoppers and tried to rely on fashion and loyalty rather than deep discounting to drive higher sales and profits. The majority of Tapestry’s sales are through its own website and stores, with wholesale accounting for just 10% of global sales in the most recently reported quarter.

Tapestry shares were up about 10% year-to-date at Monday’s close, while Capri shares were down about 24% over the same period.