Big fashion is in the midst of a U.S.-European arms race.
American fashion brands are merging to become luxury goods giants, but they’re going up against the industry’s French titan, LVMH (Louis Vuitton Moët Hennessy), and its billionaire owner Bernard Arnault, who has been in a tug-of-war with Elon Musk for the title of world’s richest person.
The latest consolidation of a U.S. luxury company is by Tapestry, owner of luxury handbag brands Coach and Kate Spade. On Thursday, it dished out $8.5 billion to buy Capri, the owner of fashion brands Versace, Michael Kors, and Jimmy Choo.
The goal is to create “a new powerful global luxury house,” Tapestry CEO Joanne Crevoiserat said in a statement. Experts say the acquisition is an effort to mitigate the effects of slowed consumer spending amid inflation and rising interest rates.
Today’s mega-merger is still dwarfed by the sector’s largest-ever deal. In October 2020, LVMH purchased the iconic jewelry company Tiffany & Co. for nearly $16 billion.
LVMH is a French luxury group formed from the 1987 merger of fashion house Louis Vuitton, champagne and spirits company Moët & Chandon, and cognac manufacturer Hennessy. The company owns 75 brands across six sectors, including fashion houses Christian Dior, Givenchy, Marc Jacobs, Fendi, and Stella McCartney; jewelry company Bulgari; cosmetics retailer Sephora; as well as vodka distillery Belvedere; and champagne winery Dom Pérignon.
The company boasts a $462 billion market cap, and the man behind the curtain is French business magnate Arnault.
The (second) richest man in the world
Arnault, 74, became chairman and CEO of LVMH in 1989 after spending $2.6 billion buying up a stake in order to become the company’s largest shareholder and oust the former chief executive, Henry Racamier.
Arnault has a net worth of $226.2 billion, according to Forbes, and his wealth is largely tied to LVMH shares, including a 97.5% stake in Dior. He and tech tycoon Musk have been vying to be the world’s richest person for over a year now.
Musk moved up to No. 1 in June with a net worth of $228.8 billion, bumping Arnault down to No. 2 after holding the title for five months, according to Forbes.
But the French billionaire is doing just fine. LVMH announced at the end of July it would become a premium sponsor of the 2024 Summer Olympics in Paris, committing €150 million, or $166 million, to the Olympic and Paralympic games, Bloomberg reported.
Recovering from the popped luxury retail bubble
With inflation and rising interest rates, American consumer spending has slowed significantly from the buying craze of the pandemic years. From 2020 to 2022, low interest rates boosted consumer spending, creating an “everything bubble.” The luxury retail market was one of many to explode.
Now, shoppers’ appetite for discretionary items like electronics, furniture, and apparel has diminished, and luxury brands are feeling the effects.
European luxury stocks fell $32.3 billion in May as investors anticipated the impact of a softening U.S. economy. LVMH shares lost over $50 billion shortly after reaching a record-breaking $500 billion market cap. (This downturn is in part why Musk surpassed Arnault as the wealthiest person in the world.)
Tapestry’s acquisition of Capri is a move to both wield greater influence in the European-dominated market and mitigate the effects of the spending slump.
“Luxury is facing something of a slowdown, especially in the North American market, where consumers, even at the higher-income end, are starting to curtail spending,” Neil Saunders, managing director at GlobalData, told the Associated Press. “This has put pressure on Tapestry and Capri, both of which are now looking to international markets to bolster growth.”
The Tapestry and Capri acquisition is expected to close next year. Both boards have approved the deal, but it still awaits approval from Capri shareholders, who will receive $57 per share in cash, a nearly 65% premium from its closing price of $34.61 on Wednesday.
Tapestry, founded in 1941, has a market cap of $8.2 billion. Capri has a market cap of $6.3 billion. The two companies generated a combined $12 billion in global sales and a nearly $2 billion adjusted operating profit in the 2022 fiscal year, according to a release.
