Tapestry, the fashion company that owns Coach and Kate Spade, said on Thursday it had acquired Capri Holdings, the parent of Versace and Michael Kors, for about $8.5 billion in cash, as consolidation in the luxury market gathers pace.
The deal between two large American companies with familiar luxury brands comes as high-end retailers look for growth amid signs that U.S. consumers are pulling back on discretionary spending. It also comes as the most dominant luxury players jostle to snap up brands and broaden their portfolios.
Combined, the two groups would 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 completed, they will operate under the name Tapestry.
The move is the boldest effort yet by American fashion executives to build a collective that might be able to compete with the might of European giants like LVMH Moët Hennessy Louis Vuitton and Kering, which owns brands like Gucci and Saint Laurent.
The chief executives of Tapestry and Capri stressed that the combination would bring their handbags, shoes and apparel to a broader consumer base and allow them to tap more resources. For Tapestry, the acquisition will help expand its reach in Europe, the Middle East and Africa, while Capri’s brands will gain more exposure in Asia. The companies said the merger also presented an opportunity to increase their direct-to-consumer businesses and save $200 million in operating and supply-chain costs within three years.
“It represents a very compelling financial opportunity,” Joanne Crevoiserat, the chief executive of Tapestry, said in an interview. “We’re finding with this combination an opportunity to deepen our engagement with luxury customers on the high end.”
On a call with investors on Thursday, analysts focused their questions on how the two companies would integrate and the timeline for the cost savings that would result. Executives emphasized that pooling resources would allow their brands to share digital and marketing capabilities, transportation and supply chains, a strategy that is often referred to as synergies.
“Synergies are always easier said than done, so this will clearly bear monitoring,” Simeon Siegel, a retail analyst at BMO Capital Markets, said in a note to clients. “But if there were ever two companies to enjoy synergies, Tapestry and Capri align.”
Executives expressed confidence at being able to integrate their brands.
“By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands,” John D. Idol, Capri’s chief executive, said in a statement.
Tapestry said it would pour money into marketing and branding as it tied the two conglomerates together.
“The consumers should see and feel the brand as they always have, perhaps feeling a little bit more innovative and relevant as we put them on a digital platform so that they communicate,” Ms. Crevoiserat said. “But they should not feel the brand differently in terms of the brand DNA.”
Tapestry’s stock fell 12 percent in early trading on Thursday. Capri’s shares soared more than 50 percent.
The deal will be financed through debt, which Tapestry could “rapidly pay down,” the company’s chief financial officer said in a statement. In its most recent quarter, Tapestry’s net sales increased 13 percent, while Capri’s revenue in its most recent quarter fell 10.5 percent.
“The potential deal comes at a time when luxury is facing something of a slowdown, especially in the North American market,” noted Neil Saunders, the managing director at GlobalData, a retail consulting firm. “This has put pressure on Tapestry and Capri, both of which are now looking to international markets to bolster growth. There is more security in embarking on bold international plans as a larger entity.”
The deal also gives Tapestry more cachet in the luxury market, analysts said.
“Tapestry has long-eyed becoming a bona fide ‘house of luxury’” similar to Kering and LVMH, said Craig Johnson, the president of the consultancy Customer Growth Partners. “But its current brands are near-luxe rather than true luxe. Capri gives Tapestry a toehold in the true luxe world, which even though Kors is by far Capri’s largest brand, over time Versace may well be the real ‘jewel in the crown.’”
The deal was the latest in the global luxury industry in recent months. This week, the upmarket Australian fashion house Zimmerman was bought by the private equity firm Advent in a deal worth $1 billion. Last month, Kering said it would purchase a stake in Valentino, bringing another large fashion label under its tent. And speculation continues to swirl around a possible sale of Bergdorf Goodman to LVMH, the world’s largest luxury group by sales. Bergdorf’s department store on Fifth Avenue in New York is across the street from the glittering flagship boutique of Tiffany & Company, the jewelry house LVMH bought for $15.8 billion in 2021.