US merger creates fashion powerhouse: Tapestry buys Versace parent company Capri for £8 billion

Top brands such as Versace, Jimmy Choo, Michael Kors and Kate Spade will be brought together under one roof in a £7 billion luxury mega-merger.

Tapestry, the parent company behind designer handbag retailer Coach, is about to buy Capri Holdings, creating a new American fashion powerhouse.

New York-listed Tapestry owns brands like Kate Spade and shoe firm Stuart Weitzman, as well as Coach, whose bags are advertised by singer Jennifer Lopez.

Capri, also listed in the Big Apple, has a portfolio that includes Italian fashion house Versace and Jimmy Choo – whose heels are loved by Sex and the City’s Carrie Bradshaw.

It also owns Michael Kors, who designed dresses for former First Lady Michelle Obama.

Tapestry CEO Joanne Crevoiserat said, “The combination of Coach, Kate Spade and Stuart Weitzman along with Versace, Jimmy Choo and Michael Kors is creating a new powerful global luxury home.”

Shares in Capri shot up 56 per cent as Tapestry’s cash offer of £45 per share represented a 59 per cent premium.

Before the Tapestry deal, shares of Capri were down 40 percent this year after it cut its current fiscal year outlook and reported third-quarter results below its own forecasts.

Yesterday, Tapestry saw its shares fall 17 percent, raising the eyebrows of luxury fashion analysts who warned it was “barely an unqualified approval” of the deal.

Bosses will hope the partnership can give European rival LVMH a run for its money as the luxury sector grapples with fears from both the US and Chinese economies.

Luxury giants have been consolidating in recent years, although US companies are often dwarfed by their European rivals in terms of size.

Last month, French fashion giant Kering, owner of Gucci, said it would buy a 30 percent stake in Italian label Valentino.

And Bernard Arnault’s LVMH paid £12 billion in early 2021 to acquire jeweler Tiffany, expanding its offering to 75 brands, including Louis Vuitton and Dior.

A long list of New York designers eventually sold to one of the European groups, including Marc Jacobs, Thom Browne, Donna Karan and Virgil Abloh’s Off-White.

These deals have not always been fruitful. Marc Jacobs struggled for years with a lack of investment and a failed restructuring, while LVMH sold the DKNY and Donna Karan brands.

Tapestry hopes the consolidation will boost the presence of its individual brands as storm clouds gather over the global economy.

There are growing concerns that a slowdown in the US is hitting sales of high-end clothing and accessories, with British brand Burberry joining LVMH in complaining of a drop in sales there.

US consumers are tightening their belts amid rising costs of living and recession fears.

Stocks in luxury brands, including Cartier owner Richemont, have also recently dragged down following disappointing economic updates in China.

This week there were concerns that the country’s economic growth could be stunted as the economy slides into deflation.

Luxury stock prices also took a hit a few weeks ago when China’s gross domestic product data came in weaker than expected.

Russ Mould, an analyst at AJ Bell, said: “Whether the purchase of Capri creates a rival for LVMH is debatable, at least if we look at what the stock market thinks.

“Investors seem concerned about the debt component of the deal and whether that will limit the buyer’s ability to invest further.”

The analyst also warned that ambitious consumers, who are the clientele for Tapestry and more affordable products, may cut back on flashy purchases “when times get tough.”

“True luxury goods appeal to the plutocrat who can buy regardless of the economic weather, and LVMH has more of those customers,” he warned.

While Tapestry and Capri are making solid profits, Arnault’s empire was “in a different class” with a forecast of a 28 percent return on sales this year.

“LVMH’s brands are more valuable and profitable and it has more of them – its annual sales base is more than seven times the combined number of Tapestry and Coach,” added Mold.

But news of the deal will have stung Bernard Arnault, who is rumored to have his eye on Versace despite selling it to Michael Kors in 2018 for £1.6bn.

The brand has designed red-carpet looks for stars like actresses Anne Hathaway and Dua Lipa. “Versace has great potential,” said Bernstein analyst Luca Solca.

Versace has been run by brother and sister Santo and Donatella Versace for 25 years, after the label’s founder, Gianni, was gunned down outside his Miami mansion in 1997.

Shares in other luxury fashion companies were boosted, with London-listed Burberry rising 3 percent and French Birkin bag maker Hermes also rising 3 percent.

Other global giants to be supported included Estee Lauder, Hermes, L’Oréal and Prada, as analysts said the sector is headed for another wave of consolidation.

The Tapestry and Capri boards have approved the deal, which is expected to close next year. It still needs approval from Capri’s shareholders.