Coach's parent Tapestry will nearly double its brick-and-mortar footprint, to roughly 2,700 stores, when it acquires Capri Holdings — the owner of Michael Kors and several other brands — in an $8.5 billion deal as it competes with Europe's luxury-goods juggernauts.

New York-based Tapestry, the owner of retailers Kate Spade and Stuart Weitzman in addition to Coach, on Thursday said it had entered into a definitive agreement to purchase Capri, home to Kors as well as Versace and Jimmy Choo. Capri stockholders will receive $57 a share in cash when the transaction closes, which is expected to happen next year.

In a joint statement, Tapestry and Capri, based in London, said the deal will combine six complementary brands, accelerate their expansion globally and across categories, and create synergies, particularly related to their supply chains, that will result in $200 million in savings over three years.

The acquisition will also be the latest in a series of mergers that have made some of the international powerhouses in the luxury sector, such as Louis Vuitton parent LVMH and Gucci owner Kering, get even larger and more formidable. The combined Tapestry-and-Capri business will move up a notch or so in market share in that arena.

"The acquisition of Capri by Tapestry is the logical next step on the journey to create a global luxury powerhouse," Neil Saunders, managing director of GlobalData, said in a note Thursday. "Once completed the new entity will be the fourth-largest luxury company in the world, with a combined market share of around 5.1% of the luxury goods market. In the Americas, the company will be the second largest luxury player behind LVMH, with a combined share of 6% of the luxury goods market."

The luxury category had remained relatively resilient during a rocky period for retail, but it has seen a bit of a recent slowdown. Affluent consumers are still spending on high-end goods because they are more buffered from rising inflation and higher prices for food and gas than other Americans. Luxury retailers have also become more important tenants to some landlords, and some malls have even created dedicated luxury wings where they group high-end stores. David Simon, CEO of mall giant Simon Property Group, said on a recent second-quarter earnings call that LVMH ranks in the top 10 tenants for his company.

Luxury retailers "have loyal customers," Simon told Wall Street analysts. "So there's no better companies to do business with ... and we aspire to be more like them than, than anything. And I think how they maintain their stores and how they treat their customers and how they're true to themselves. So the luxury business is here to stay. It's growing. It's really important. It's worldwide. It's a great consumer that loves physical retail, that wants to go shop and do other things at our centers."

Tapestry and Capri combined will have $12 billion in annual revenue and a substantially bigger store fleet domestically and globally. As of Dec. 31, worldwide Coach had 953 stores, Kate Spade had 400 stores and Stuart Weitzman had 99 stores, for a total of 1,452 locations. As of July 2, Capri's Michael Kors had 810 stores, Jimmy Choo had 237 stores, and Versace had 224 stores, for a total of 1,271 locations. The merged companies will have 2,723 stores. Analysts said they expect Tapestry will open more stores after the merger but didn't know how quickly that would happen.

Capri now occupies about 1.18 million square feet of retail space across the United States with an average footprint of just under 3,350 square feet per store, Brandon Svec, national director of U.S. retail analytics for CoStar Group, said in an email. The vast majority of locations are under the Michael Kors brand, according to CoStar data. Tapestry now occupies 1.49 million square feet of retail space domestically with an average footprint of just over 2,800 square feet.

Retail analysts said they don't expect to see Tapestry closing any stores after the merger is completed.

"Given a similar target customer in the luxury space, there is significant overlap in locations between the two companies (and six brands)," Svec said in an email. "That said, I would not expect there will be much, if any consolidation of retail space, as each brand within the combined entity will likely keep its own unique attributes and feel. The real estate implication is much more likely to be felt on the office side (albeit, where the combined entity has significantly less space), where synergies are much more likely to be identified."

With its bigger scale after the acquisition, Tapestry can follow in the footsteps of its bigger rivals such as LVMH, according to GlobalData's Saunders.

"American luxury fashion companies have long looked with envy at their European counterparts, which exert significant power and influence in the market through their house-of-brands approach," Saunders said in his note. "As luxury labels tend to be directional and are targeted at particular demographics and tastes, the model works because it allows firms to grow large by having a patchwork of brands appealing to different segments, rather than by making individual brands ubiquitous. A house of brands approach is also efficient as core functions and talents can be applied to the different brands, reducing expense in areas like distribution and operations."

The merger may also give Tapestry more leverage with landlords, according to some analysts and consultants.

"A combined entity will have a bit more negotiating power with landlords and malls, if only because it will control a lot more stores," Saunders said in an email to CoStar News. "That said, because the brands it operates are all separate entities the group will not be consolidating or merging its stores. It may undertake a review of the store fleet once the acquisition has completed but given how important direct to consumer sales are for luxury brands, I doubt that there will be a rash of closures. Tapestry might even decide that some of the Capri brands need more stores to amplify their presence."

Tapestry's acquisition of Capri will probably give it an edge on the real estate front, Anjee Solanki, national director of retail services for Colliers, told CoStar News.

"When you look at the top-performing malls across the U.S., and the high sales per square foot, LVMH can come in and talk to those five, six, seven landlords and get portfolio deals and take down the best location and cluster their brands together, and they're going to see that strong performance," Solanki said. "And I think that's what Capri and Tapestry are looking at in terms of how do we combine forces so we can also benefit from having better-positioned real estate, to be in the top malls and not be out-positioned or displaced, let's just call it, because LVMH has come in and taken the better sites. I think it provides a strength there."

Edward Coury, senior managing director at RCS Real Estate Advisors, told CoStar News that Tapestry may also get a better hand to play with landlords.

"If they position their portfolio properly, there's no doubt that they have twice the amount of impact and store count, and they should have definitely improved leverage," he said. "In terms of growth and stores and all that, they bought the businesses to improve them ... to improving those brands. And some of them are in a good position and some of them are not. So they're going to have to enhance the brands and once you do that, then growth is the natural next step."

He added that "I would imagine they'll be a little cautious right now, because in the near term they've got to get their arms around what they just rally acquired, not just from a business standpoint and a merchandising standpoint it's from a real estate standpoint."

Coury said Michael Kors and Coach have a very mature outlet-store business, "but some of their other brands certainly have opportunities, not only in full price but outlet."

Luxury retailers are plum tenants for malls because they have high average sales per square foot, which helps drive higher rents and valuations at those properties, according to Coury. Those high-end stores also bring foot traffic to retail centers, he said.

Tapestry successfully revived the Coach chain and revitalized Kate Spade. It will have to take the same kind of action with flagging Michael Kors, which lost its luster with oversaturation and discounting of its apparel at department stores and other retail outlets. Tapestry officials on Thursday emphasized they are interested in direct-to-consumer sales, from its own stores and e-commerce.

"I think the acquisition of Capri Holdings by Tapestry is good for shopping center owners and for the shopping center industry in general," Rudolph Milian, formerly with the ICSC retail trade group and now president and CEO of Woodcliff Realty Advisors, said in an email to CoStar News. "Tapestry has a good track record for distributing and marketing its brands. Tapestry did a good job turning around Coach and Kate Spade and making their products available to the consumer via the internet and physical stores."

Michael Kors "is an excellent brand but it relies too much on wholesale business distribution through the declining department store sector," according to Milian.

He expects Tapestry "will look to open more off-price Michael Kors stores in outlet centers and full-price stores in malls, fashion-oriented community centers and lifestyle centers, which will make the brand more prominent to consumers exactly where they shop," he said. "The same would apply to Versace and Jimmy Choo. Jimmy Choo is a very upscale brand but needs more presence at upscale malls. I can foresee opportunities for expanding Jimmy Choo stores beyond its very limited presence."

Capri reported its fiscal 2024 first-quarter earnings Thursday, saying that revenue dropped 9.6% to $1.23 billion. Michael Kors performed the worse of its three chains, with its revenue dropping 13.8%, to $787 million.

"As the ink dries on the acquisition agreement by Tapestry, champagne corks will no doubt be flying at Capri’s HQ," Saunders said in a separate note on the earnings. "However, if anyone needs sobering up, they only need to look at the latest trading numbers from the luxury group. These do not make for happy reading and show a continued decline in overall revenue, by 9.6%, and a sharp deterioration on the bottom line where net income is down by 76.1%. ... Against this performance, the price paid for Capri by Tapestry seems extremely toppy."

Tapestry and Capri didn't respond to emails seeking a response to his comments.

Saunders was especially critical of Michael Kors' performance and said Tapestry has its work cut out for it with that chain.

"The recent trajectory of Capri, and especially the core Michael Kors brand, also means that Tapestry is not buying a business that is firing on all cylinders; it is buying a business that, while still perfectly roadworthy, needs a lot of maintenance and fine tuning," Saunders said. "Tapestry will likely be confident it has the skills needed to do the job, but the size and scale of the work required and the time it will take should not be underestimated."

Morgan Stanley is serving as Tapestry’s exclusive financial adviser, and Latham & Watkins is its legal adviser. Capri’s financial adviser is Barclays, and its legal adviser is Wachtell, Lipton, Rosen & Katz.