The Tapestry-Capri merger is off the table — leaving Capri, parent company of Michael Kors, Jimmy Choo and Versace, in the lurch.
“Capri unfortunately took more of a hit when the deal did not go through,” says luxury industry advisor Robert Burke. Expert consensus is that this isn’t the worst outcome for Tapestry. Analysts had hazarded that the Coach owner might be paying too much for Capri already — and that was before the company’s share price declined. This was, in part, what made the merger more risky for Tapestry, says Shermin Lakha, founder and managing director of Lvlup Legal.
“I thought that this merger would strengthen the US foothold in the world of luxury fashion, allowing it to compete more heavily with European fashion houses. However, given all of the factors, including the share repurchase programme, I think that Tapestry may be more profitable focusing on their current brands,” she says.
So where does this leave Capri?
Burke says that Tapestry’s initial interest — and belief that it could turn around Capri’s properties in the hope of creating a North American conglomerate — is a silver lining. “There is potential in rebuilding their brands,” he says of Capri. “Michael Kors, Versace and Jimmy Choo are heritage-level brand names, and with the right attention to detail from a marketing and branding standpoint, they can be revitalised.”
The group has a number of options, though none are straightforward, experts flag.
To break up or to go private?
One avenue for Capri is to sell off its brands. A break-up is the best option for shareholder value, says Aneesha Sherman, VP of US apparel and specialty retail at Bernstein.
In a note from 8 November, after the deal was blocked, Sherman highlighted proven market interest in Versace and Jimmy Choo. Shareholders showed interest before Capri purchased both brands back in 2017, and Capri had discussions about sales for both prior to the Tapestry agreement in 2023. She’s confident that Michael Kors has better potential as a standalone brand.
That said, Capri wouldn’t necessarily have to sell off all labels, Burke flags. Even one could create room for success. “Selling off a brand like Versace to a European counterpart may make it easier to focus on Michael Kors and Jimmy Choo,” he says.
Potential acquirers could include European luxury houses, private equity firms, Asia or Middle Eastern buyers of luxury brands, and/or strategics, TD Cowen managing director Oliver Chen wrote in a note on 15 October.
Another option is to take the company private. “The current climate for investment in fashion is sluggish,” Burke says, but adds that if Capri is able to pull it off, going private could help ease the pressure of the post-merger transition to whatever phase comes next.
Jessica Ramírez, senior analyst at research firm Jane Hali Associates, says it would be in Capri’s best interest to go private. “If they go private, they stay out of the public eye; so they have more freedom in doing what they need to do [particularly with Michael Kors] without being constantly criticised,” she says. Ramírez feels that Capri’s brands have work to do when it comes to modernising their retail strategies, product design and improving operations. And so far, the company has not met the expectations of the market — “the stock keeps falling.”
But going private is no simple task. Bidders must put forth a takeover bid that typically requires approval by the company’s board of directors, who consult with legal and financial advisors, then shareholders. It is then examined by the US Department of Justice to ensure there is no antitrust violation. As is typical of ‘going private’ transactions, if approved, this would also likely rely on large amounts of debt. In September, the Nordstrom family made a $3.76 billion bid to take the business private (it’s been public since 1971). No verdict or update on this bid has been reported since.
Lakha also expects that Capri might explore other mergers, though the list of potential candidates isn’t a long or obvious one.
In-house revamp
Revamping its brands and investing in their images will be perhaps the most resource-intensive approach. But, outside of M&A activity, it’s Capri’s only option.
Though, as Burke says: Tapestry believed it could steer the brands in the right direction, so it’s not out of the question that, with a strategy switch-up, Capri could do the same. “They need to develop their messaging to attract younger consumers in relatable ways that will resonate and drive sales,” he says, referencing Tapestry’s success as the model.
“It can be done,” Burke continues, pointing to the positive transformations at brands such as Chloé and Coach (though Chloé was certainly not in as much of a crunch as Kors). “They need to understand their desired demographics and focus on design, product and building a narrative.”
Analysts are particularly concerned about Michael Kors. Chen wants to see the brand further engage younger consumers, per his note. Yet Burke is confident in the brand’s potential, and Capri’s ability to steer it. “Michael Kors is an iconic American designer, and John Idol is an extremely experienced CEO,” he says. “I believe they can reignite the brand.”
With additional reporting by Maliha Shoaib.
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