Will Tapestry’s Acquisition of Capri Holdings Create a Luxury Juggernaut?

Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman, has further cemented itself as a luxury powerhouse through the acquisition of Capri Holdings, parent company of Versace, Jimmy Choo, and Michael Kors. The $8.5 billion deal values Capri at $57 per share and would create a company with more than $12 billion in annual sales across 75 countries.

The deal is expected to close in 2024, subject to regulatory approval and other customary closing conditions. The boards of both companies have already unanimously approved the transaction.

Tapestry’s interest in Capri isn’t necessarily a surprise. McKinsey noted in 2020 that the uncertainty created by the COVID-19 pandemic impacted the very foundations of the luxury industry, creating opportunities for major acquisitions in the future. Luxury was already a space undergoing wildly varying growth patterns, with different companies at the same price points experiencing anywhere from 40% sales growth to annual losses.

The trend recorded by McKinsey played out in this deal. Capri reported a 10.5% year-over-year revenue decrease for Q4 2023, which ended on April 1, and a 3% decline for fiscal 2023 as a whole. In comparison, Tapestry reported 5% revenue growth for its Q3 2023, which likewise ended April 1.

Now, Tapestry is aiming to apply its consumer-centric strategy to the storied brands it has acquired from Capri. One of the luxury retailer’s stated goals is to leverage its own direct-to-consumer model to improve Capri’s performance in this area. Additionally, Capri’s brands bring expertise in the footwear and ready-to-wear categories where Tapestry’s banners have less penetration, which will deepen the company’s reach into multiple lifestyle categories and diversify its portfolio.

The combined company can also stand against, or potentially become involved in, the rising tide of luxury resale.

The secondhand luxury goods market reached €43 billion ($46.9 billion) in sales in 2022, up 28% year-over-year — about 1.3 times the growth rate for new luxury products, according to a study by Bain & Company. While the growth ratio is down from 3.4 times in 2018, secondhand sales are already worth slightly more than 10% of the overall €353 billion ($384.9 billion) personal luxury goods market.

For now, luxury juggernauts like Tapestry are in a good spot. Bain noted that spending on luxury goods grew approximately 20% in 2022, and it’s expected to rise even higher in 2023, which shows that a strong brand can thrive even during times of economic turmoil. The combination of six storied brands under one roof could create a luxury giant that defines the shape of the category for years to come.