Snapshot: What the FTC is Doing – and Saying – as Luxury Looks to M&A

Luxury brands are looking to respond to spending slowdowns by way of M&A activity, according to industry reports. The deceleration in spending has already prompted some consolidation for online players, Axios wrote late last year, noting that more deals are “likely to follow … driven by the pressures of profitability, more so than anything else.” At the same time, Bain stated in its Luxury Goods Worldwide Market Study early this year that “we should see a new season of M&A born of the necessity to address key challenges of the industry,” including (but certainly not limited to) “support [for] category growth [and] expansion into new geographies.”

Still yet, Goldman investment banker Cosmo Roe told WWD this spring that “potentially larger-scale consolidation” may be on the horizon in the luxury goods segment “as people think about how to shift their business exposure and how to play the complicated dynamics between China, Europe and the U.S. from a consumer demand perspective, which … makes it a very dynamic market right now.”

All the while, companies have hinted at acquisitions, with Kering’s Chief Financial Officer Armelle Poulou saying in April that the French group has a balance sheet that would allow for “incremental” mergers and acquisitions. Lorenzo Bertelli, son of Prada’s founders, confirmed in May that the group is “always looking around for opportunities” when it comes to M&A. And around the same time, Giorgio Armani said in an interview that he will not rule out a merger – or alternatively, an IPO – for his eponymous company; although, sources for TFL say no such plans are actively in the works for the Italian company.

In terms of actual deals: Coupang snapped up Farfetch. Club Monaco, Escada, and La Senza owner Regent has acquired Bally International. EssilorLuxottica said this summer that it will acquire Supreme from VF Corp. Watches of Switzerland Group will acquire Roberto Coin, etc.

Tapestry + Capri

For any deals that are slated to impact the U.S. market in a meaningful way, chances are, the Federal Trade Commission (“FTC”) will not make it easy. One need not look further than the potential merger between Coach-owner Tapestry and Michael Kors’ parent Capri Holdings, which is currently in the midst of FTC-initiated litigation.

As we covered in last month’s Deep Dive, the FTC issued an administrative complaint and authorized a lawsuit in a New York federal court in April in furtherance of an effort to block a proposed deal between Tapestry and Capri. According to the FTC, the $8.5 billion deal “seeks to combine three close competitors – Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand” – and thus, “would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands” and “give Tapestry a dominant share of the ‘accessible luxury’ handbag market” in the U.S.

That case will turn on how the FTC defines the relevant market in which it claims that competition will be impaired by the proposed merger. For Tapestry and Capri, the regulator argues that this is the “affordable luxury handbag market” – to which the two fashion groups have vehemently pushed back.

>> It is also worth noting that the merger has not raised regulatory red flags in other national markets. The relevant bodies in the European Union and Japan, for instance, both cleared the proposed acquisition this spring. The European Commission stated in a press release that it “concluded that the notified transaction would not raise competition concerns in the European Economic Area (‘EEA’), given (i) the companies’ relatively low combined market shares in the EEA; (ii) the limited role that Coach and Kate Spade New York have in the EEA; and (iii) the presence of a large number of alternative suppliers in the EEA.”

Saks + Neiman Marcus

Not the only fashion-centric deal that has garnered FTC attention as of late, the agency has almost certainly taken a close look at the proposed $2.65 billion deal to combine American retailers Saks and Neiman Marcus to create one new entity called Saks Global. The parties to the deal, namely, Saks Fifth Avenue owner HBC, and Neiman Marcus Group (“NMG”), announced on August 21 that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) had passed.

The expiration of the HSR Act waiting period “satisfies a closing condition for the transaction,” the parties said in a statement last month, noting that the transaction “remains subject to other customary closing conditions.” The end of the waiting period without any reported communication from the FTC or the DOJ seems to confirm that neither agency has any major issues with the merger coming into effect.

The Merger Guidelines

Even if the Saks, Neiman merger goes through without issue, potential problems for other merging parties still may remain in light of the FTC’s new focus on the fashion/luxury segment, in particular, and its broader attention to mergers as indicated by the updated “Merger Guidelines” that it published in December 2023. “While not legally binding, the eleven Guidelines often influence court decisions,” TALG lawyer Dima Hanna stated in a note. The new Guidelines outline multiple factors the Department of Justice and FTC are concerned with when determining whether to block a potential merger, she said, highlighting …

> Guideline 1: Mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market;

> Guideline 2: Mergers can violate the law when they eliminate substantial competition between firms;

> Guideline 7: When an industry undergoes a trend toward consolidation, the agencies consider whether it increases the risk a merger may substantially lessen competition or tend to create a monopoly; and

> Guideline 10: When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers, creators, suppliers, or other providers.

Serial Acquisitions and Roll-Up Strategies

All the while, the FTC has focused its attention on serial acquisitions and roll-up strategies – or corporate consolidation efforts that enable a company to become larger (and potentially dominant) by buying several smaller firms in the same or related business sectors or industries. In what has been called a “rare move,” the FTC and the Antitrust Division of the Department of Justice issued a joint request this summer seeking details from the public on these particular M&A strategies, further indicating its heightened interest in cracking down on anticompetitive efforts.

Not divorced from at least one fashion case, the FTC has characterized Tapestry as a serial acquirer, with the agency saying in a statement in connection with the filing of its case in April that Tapestry “has engaged in a decade-long M&A strategy through serial acquisitions to achieve its dream of becoming a major American fashion conglomerate. It has continuously sought to acquire a variety of fashion brands, successfully pursuing many of its target acquisitions.”

Continuing on, the FTC asserted, “Given Tapestry’s pattern of serial acquisitions, the acquisition of Capri will further entrench Tapestry’s stronghold, making it harder for new brands to both enter the market and have a meaningful presence … This deal isn’t likely to be Tapestry’s last, as the acquisition of Capri will give Tapestry additional leverage to make even more acquisitions in the future.”

Moreover, Henry Liu, Director of the FTC’s Bureau of Competition, said in the same statement that “with the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry.”

Albertsons + Kroger

And while it is not a fashion-centric case, the FTC’s pursuit of Kroger Co.’s $24.6 billion acquisition of Albertsons Cos. Inc. on antitrust grounds is worthy of attention. The FTC asserted in its February 2024 complaint that, if allowed, the “largest supermarket merger in the U.S. history will eliminate competition and raise grocery prices for millions of Americans, while harming tens of thousands of workers.”

A trial in that case is underway in federal court in Oregon, with Kroger and Albertsons taking issue with the FTC’s theories of harm (including lower quality products and services, narrowed consumers’ choices for where to shop for groceries, and lessened competition for workers in terms of wages, benefits, and working conditions). In a statement, a spokesperson for Kroger said this week that it is merging with Albertsons “to bring lower prices to more customers, protect good-paying union grocery jobs, and to better compete with massive retailers Walmart, Costco and Amazon.”

In the event the merger is blocked, consumers will see higher grocery prices and “the larger, non-union retailers Walmart, Costco and Amazon will become even more powerful and unaccountable,” the spokesperson said.