Tapestry (TPR) & Capri (CPRI) Pre-Court Date Update
Tapestry (TPR) & Capri (CPRI) Pre-Court Date Update
Looking at the most recent documents leading up to the
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Tapestry (TPR) is about to head to court against the FTC in which the agency sued to block the acquisition of Capri Holdings (CPRI), which owns Michael Kors, Versace, and Jimmy Choo.
I’ve covered this deal extensively on this site and on Twitter. I've listed my past research on the name in ascending order if you want to read it.
In regard to this post, I wanted to go over a few transcript documents from the FTC website about the case and then walk through what I think the break price could be for CPRI should the deal fall apart.
To make it known, I still think the deal will likely continue to go through but the current spread is currently sitting at 64% which is still crazy to me.
However, as a reminder, the FTC suit is largely based on two core points.
The acquisition of the two companies will hurt consumers because NewCo will hold too much of the ‘accessible luxury’ handbag market which will allow them to raise prices and limit the choice of the consumer.
The deal will hurt head-to-head competition between the two companies and their portfolio brands which will also hurt consumers because they won’t be competing against each other and offering competitive pricing
There are other points that the FTC tries to make but I think they are more along the line of throwing wet spaghetti at a wall to see what sticks. An example being the deal hurting workers. Whatever that means.
But I’ll be going over my notes on
The transcript for the expert witness in the handbag space, Sloan Tichner, Steve Madden President of Handbags for 18 years
Tapestry’s defense motion against FTC for not establishing a relevant market
(Briefly) FTC’s response to defense motion
Statement of Facts from TPR
The break price of CPRI
If at any point you want to just skip to one of these topics, that’s the order that they will be falling in. This is a long report that goes over documents and where I share my opinion. If you’re not interested in the trade, then perhaps I can spare you from reading on. If you are interested in the trade and just want my perspective based on these documents, then please continue.
Deposition of Sloan Tichner, President of Steve Madden Handbags
Sloan Tichner has been the President of Steve Madden (SHOO) handbags for the last 18 years and was a VP of handbags for the same company during the GFC. She brings a lot of outside knowledge and perspective to the case which involves overseeing both the sales and design parts as well as the pricing.
The FTC is trying to prove a relevant market exists by utilizing price ranges from $100 to $1,000. Outside this range gives them the “mass-market” below $100 and “luxury” above the $1,000 price point.
Sloan admits that Steve Madden, despite operating different brands within the portfolio (Steve Madden, Betsey Johnson, Love Betsey, Dolce Vita, and Anna Klein) sells mainly for under $100, thus putting them in mass-market by the FTC’s definition.
To add credibility to her future comments, she too confirms that Steve Madden, while mass-market, sells their handbags in similar sales channels. (Q = question / A = Answer from Sloan)
“Q: What are those sales channels?
A: Department stores, specialty stores, some chains, off-price retailers, as well as our own stores.” - PDF pg 6, transcript pg 21
What’s interesting is that eventually, the FTC counsel asks Sloan, “ are you familiar with the phrase ‘accessible luxury’?” To which Sloan says yes but when they ask her what brands are in there, her immediate response is “a lot.”
Right off the bat she already dents the broader logic that everyone but the FTC seems to understand that the competition is fierce because there are a lot of brands. She later goes on to throw the brands in question into that mix while also acknowledging that true luxury, in her opinion, starts at the $1,500 price point.
Going further into the deposition, which at this point as shifted from the FTC asking questions to TPR’s counsel asking questions, she really drives home that the competition is all around everyone no matter what price point you’re in.
First, she goes by saying that in order to understand the market and its trends, it looks everywhere for that. Both internationally and globally.
She then reinforces this by stating that the company even looks at luxury companies as well as those that fit in the “accessible luxury” category that the FTC is trying to prove (pg70).
What’s more interesting is that TPR’s counsel is making Sloan read Steven Madden’s (SHOO) “risks” section in their SEC filings to use against the FTC, which I thought was hilarious because the FTC was using TPR’s and CPRI’s filings to use against them.
On pages 71 and 73, even Steve Madden admits that the industry is super competitive in general but also that Sloan agreed that the handbag market was competitive on its own.
Within that competition discussion, Sloan then reads the other parts of SHOO risks which label the fashion industry as rapidly changing and if they don’t change with it, or fast enough, then the competition will hurt the company.
When asking for clarification, TPR counsel then confirmed with Sloan that SHOO does have to have increased markdowns to move the product (discounting part the FTC was attacking) and that the barriers to entry are low (contradicting the FTC).
Other points she confirmed were that any brand selling a handbag in a retailer means that they’re competing against each other, not that they have to be within certain categories (i.e. accessible luxury).
Lastly, she reiterates that Steve Madden, a brand that sells within the “mass-market” segment, does compete with the portfolio brands of TPR and CPRI.
This was a long document but there are a few key takeaways that are pertinent to the case which are in favor of TPR.
Steve Madden, a brand with sub-brands in the mass-market space, does compete with other brands at their level and above. They are not immune to that.
Any handbag brand in a retailer competes with each other.
Fashion is highly competitive by nature and the barriers to entry are low.
For the record, Sloan was not interviewed willingly, she was subpoenaed for the point of this case. But with that, I’m going to dive into the second document which is TPR’s motion against the FTC on how they still have yet to accurately define a relevant market.
TPR Defense Motion Against the FTC for Preliminary Injunction
This document is 49 pages and I just highlight a few points because I don’t want this broader report to be just me repeating, in a way, what’s already said in the documents.
However, this document was hilarious to read because you could clearly hear the tone in the writer’s voices when they wrote this. If I could label this document into one GIF, it would be the below.