Business

Prices on Shein and Temu could rise by as much as 20% if the Biden administration successfully closes the so-called “de minimis loophole.”
The loophole allows packages valued under $800 to avoid import duties and scrutiny at the border.
Shein and Temu have said their low prices aren’t related to the de minimis exemption and instead, their innovative business models.

A man walking past a logo of fast fashion e-commerce company Shein outside its office in Guangzhou in southern China’s Guangdong province. 
Jade Gao | Afp | Getty Images

The bottom of the barrel prices that have made Chinese-linked e-tailers Shein and Temu so popular with American consumers could soon rise if the Biden administration curtails their use of a trade law loophole.
The companies, known for their $5 T-shirts and $10 sweaters, could see prices rise by at least 20% if the so-called de minimis provision is changed, a spokesperson for the Republican majority of the House Select Committee on the Chinese Communist Party told CNBC. The committee made the estimate after launching investigations into Shein and Temu more than a year ago.

Neil Saunders, a retail analyst and the managing director of GlobalData, agreed the policy change would likely increase prices, but couldn’t say by how much. 
“If the de minimis exemption is removed, then the cost of products from marketplaces like Shein and Temu will rise. They will still be cheap marketplaces but they won’t have quite the competitive edge on price that they do now,” Saunders told CNBC in an email. “That may lose them some market share or slow their growth, but they will likely respond by pushing into some higher-priced items to balance out their propositions.”
On Friday morning, the Biden administration announced plans to bar overseas shipments of products that are subject to U.S.-China tariffs from being eligible for the de minimis exemption. 
An obscure tariff law loophole that’s been around since the 1930s, the exemption allows packages with a value of less than $800 to enter the United States without the shippers paying import duties and with less scrutiny than larger containers. 
The announcement comes after more than a year of scrutiny into the companies from lawmakers on both sides of the aisle and in particular, the House Select Committee on the CCP. 

Both Shein and Temu declined to tell CNBC if they will raise prices due the proposed changes. The companies also disputed that their low prices are driven by the de minimis exemption and said their business models allow them to offer their ultra-affordable rates.
A spokesperson for Shein noted that the company supports de minimis reform and was recently accepted into a voluntary, pilot program with U.S. Customs and Border Protection where it agreed to provide additional data about packages and shipments.

A risk to their competitive edge 

Over the last couple of years, the two companies have taken U.S. consumers by storm with their ultra-low prices and their ability to rapidly churn out trending styles far faster than competitors can. Shein is estimated to take in more than $30 billion in revenue annually, but it’s unclear what Temu’s sales are. Its parent company, PDD Holdings, saw $34.9 billion in revenue in fiscal 2023 — a 90% increase from the year ago period.
As the companies have become go-to shopping destinations, they’ve taken market share from rivals that cater to similar consumer segments, such as H&M, Zara, Target, Walmart and Amazon.
If Shein’s prices were to rise by 20%, it would put its assortment closer in line with those competitors, which could make it harder for it to compete.
For example, the average price of a dress on Shein was $28.51 as of June 1, according to data from Edited, a London-based research firm that analyzed the company’s pricing strategy and shared metrics with Reuters.
At the time, that price was well below the average cost for dresses at H&M and Zara, which were $40.97 and $79.69, respectively, according to Edited’s data. However, if costs were to rise by 20%, that would make the average dress price on Shein $34.21 – far closer to H&M’s average price.
There’s no guarantee prices would rise 20% if the Biden administration’s proposal takes effect. Still, taken together with the company’s long shipping times, a smaller discount relative to Shein’s rivals may lead some consumers to opt for retailers that are closer to home. 
“Ultimately, while reforming the de minimis rules makes for a fairer and more level playing field, like any tariff it will end up costing consumers more,” said Saunders. 

Scrutiny of a digital darling

Last year, the committee began investigating Shein and Temu for slave labor in their supply chains and zeroed in on their use of the de minimis exemption, claiming in a June 2023 report that both companies didn’t pay any import duties in 2022. Shein disputed that claim and said the company paid millions of import duties in 2022 and 2023. It has, however, acknowledged that cotton from banned regions has been found in its supply chain and said it’s working to rectify the issue. Temu didn’t respond to inquiries about slave labor in its supply chain.
“As the Select Committee’s investigation into Shein and Temu revealed, the majority of products from Shein and Temu fall under the de minimis exception. This allows them to dodge U.S. Customs and evade the scrutiny other retailers face. The U.S. must urgently curb these shipments and force these companies to correct their anemic compliance practices,” a spokesperson for the committee told CNBC.
The spokesperson added that “Congress must urgently make de minimis reform law.”
As scrutiny of Shein intensified, its hopes of pulling off a long awaited U.S. public offering dwindled. 
Lawmakers, eager to curtail the influence that Chinese-linked retailers were having on the U.S. economy and take steps they said would level the playing field for American companies, were unlikely to propose an outright ban of Shein and Temu, similar to what was done with social media company TikTok. 
Instead, numerous lawmakers called for the U.S. Securities and Exchange Commission to block Shein’s IPO and targeted the de minimis exemption as the best way to curtail the company’s growth. 
Now, more than a year into those efforts and Shein’s own sputtering charm offensive, its plans for a New York IPO are all but dead and it has turned to London in hopes of finding a friendlier reception. 
In June, CNBC reported that Shein had confidentially filed for a public listing in London as it faced backlash in the U.S. 
It’s unclear what impact the proposed de minimis changes will have on Shein’s IPO plans. More

Chief Financial Officer Brian West said the financial impact of the strike will depend on how long it lasts, but noted it will affect the company’s production of its bestselling planes.
Boeing workers overwhelmingly rejected a tentative labor agreement and walked off the job after midnight on Friday.
The potential production disruption comes as the plane maker has been facing a slew of issues.

Union members hold picket signs during a news conference following a vote count on the union contract at the IAM District 751 Main Union Hall in Seattle, Washington, US, on Thursday, Sept. 12, 2024. 
M. Scott Brauer | Bloomberg | Getty Images

Boeing CFO Brian West said the labor strike that began just after midnight Friday will hurt aircraft deliveries and “jeopardize” the company’s recovery, hours after factory workers overwhelmingly rejected a new labor contract and walked off the job.
West said the financial impact of the strike will depend on how long it lasts, but that it will affect the company’s production of its bestselling planes, including its cash cow bestseller, the 737 Max, which is produced in Renton, Washington.

“The strike will impact production and deliveries and our operations and will jeopardize our recovery,” West said at a Morgan Stanley conference on Friday. “So our immediate focus is to the laser-like focus on actions to conserve cash, and we will.”

Boeing factory workers gather on a picket line during the first day of a strike near the entrance of a production facility in Renton, Washington, U.S., September 13, 2024. 
Matt Mills Mcknight | Reuters

He said Boeing’s priority is to get back to the bargaining table and “reach an agreement that’s good for our people, their families, our community.”
Boeing shares fell sharply on Friday after Moody’s put all of Boeing’s credit ratings on review for a downgrade and Fitch Ratings said a prolonged strike could put Boeing at risk of a downgrade, actions that could drive up the borrowing costs of a manufacturer that already has mounting debt.
Boeing shares closed nearly 4% lower Friday.
West declined to say whether the company could meet a rate of producing 38 737 Max planes per month by the end of the year.

Jefferies aerospace analyst Sheila Kahyaoglu had previously estimated that a 30-day strike could be a $1.5 billion hit for Boeing.
West said Boeing’s immediate focus would be “on actions to conserve cash” and added that new CEO Kelly Ortberg would be working to restore relationships with the union.
Boeing and the International Association of Machinists and Aerospace Workers had unveiled a tentative labor agreement on Sunday that included 25% wage increases over four years and other improvements to health-care and retirement benefits. But workers had been looking for raises of 40% and argued that it didn’t cover the increased cost of living.

Read more CNBC airline news

Workers in the Seattle area and in Oregon voted 94.6% to reject the proposal, and 96% voted in favor of a strike.
They walked off the job after midnight on Friday.
Boeing machinists last went on strike in 2008, a work stoppage that lasted nearly two months.
The potential production disruption comes as the manufacturer has been facing a slew of issues. It’s struggled to ramp up production and restore its reputation following safety crises.
A door plug blowout on a nearly new Boeing 737 Max 9 in January led the Federal Aviation Administration to bar Boeing from increasing output of its Max planes and the FAA to boost inspections at production plants, until the regulator is satisfied with its safety and quality procedures there.
An FAA spokeswoman told CNBC on Friday that the agency will keep its inspectors at Boeing facilities during the strike.

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Two U.S. lawmakers have introduced a bill to address sports betting at the federal level.
The proposed legislation would focus on affordability, advertising and artificial intelligence.
Operators, meanwhile, say the sports betting industry has brought benefits, such as tax contributions, and state regulations are adequate.

Sen. Richard Blumenthal (D-CT) (L) and Rep. Paul Tonko (D-NY) hold a news conference to introduce online gambling legislation outside the U.S. Capitol on September 12, 2024 in Washington, DC. 
Chip Somodevilla | Getty Images

Sports gambling has exploded across the United States over the past six years and, in response, two lawmakers have introduced legislation that would implement federal regulations on the practice.
Rep. Paul Tonko D-N.Y. and Sen. Richard Blumenthal, D-Conn., on Thursday introduced the Supporting Affordability and Fairness with Every Bet, or the SAFE Bet Act, which seeks to ensure sports betting operators comply with minimum federal standards and tries to address the public health implications resulting from the legalization of sports betting.

“This relationship between the gambling industry and sports has reached intolerably dangerous levels, and it’s well past time for Congress to just to step up and make a difference,” Tonko said in a press conference on Thursday.
The Supreme Court struck down the federal ban on sports betting in 2018. Six years later, sports betting has exploded across the United States, as 38 states have legalized it. The industry posted a record $11 billion in 2023, marking a 44% increase over the previous year, according to the American Gaming Association.
It’s also brought billions in new revenue to states as they take a cut of the pie through taxes.
The rapid growth has led to operators fronting big money to acquire customers through advertisements, promotions and enticements.
“Now every single solitary moment of every sporting event across the globe has become a betting opportunity, whether you’re scrolling on social media, driving down the highway past billboards, or listening to your favorite podcast or radio station, sports betting ads are there to prompt you with an endless cascade of flashy promotions,” Tonko said.

Gordon Douglas joined the lawmakers at the press conference and said he’s seen the challenges of gambling addiction firsthand with his son, 28-year-old Andrew Douglas. Gordon Douglas says his son, an athlete and coach, signed up with a gambling company and was then inundated with promotions and ads from at least six others.
“He became a different person that would say anything to get money to gamble,” he said. “He reached a point of wanting to end his life because he saw no way out.”
The Douglas family is not alone — an estimated 7 million people in the U.S. have a gambling problem, with one in five problem gamblers having attempted suicide, according to the National Institutes of Health and National Council on Problem Gambling.
A July report found that the odds of bankruptcy filing in states with legal betting increased by as much as 25% to 30%.
The lawmakers say they are not trying to ban gambling on sports — they are just trying to make it safe for the public to enjoy as a recreational activity by pushing for a national standard.
“State regulation is faint-hearted and half-baked. That’s why we need a national standard — not to ban gambling — but simply to take back control over an industry that is out of bounds,” Blumenthal said Thursday.
The bill addresses three key areas tied to sports betting: advertising, affordability and artificial intelligence.
“This industry is exploiting the most advanced technology to make the most money,” Blumenthal said about AI.
He said he wants to prohibit the use of AI to track player’s gambling habits and individual promotions.
The bill is also pushing for changes to advertising, which includes prohibiting sportsbooks from advertising during live sporting events that are intended to induce gambling with “no sweat,” or “bonus” type bets.
Finally, the legislation would limit customer deposits to five in a 24-hour period. It would mandate gambling operators ensure customers who wager more than $1,000 can afford to do so.
“The gambling industry is following a playbook developed by the tobacco industry and this is a direct threat to public health,” said Richard Daynard, a law professor and president of the Public Health Advocacy Group at Northwestern.
The sports betting operators, meanwhile, are fighting back and saying the industry has brought benefits.
Chris Cylke, the American Gaming Association’s senior vice president of government relations, said the bill is “a slap in the face” to state regulators and gaming operators that have dedicated significant time and resources to developing the framework as the market evolves.
“Today’s regulated sports wagering operators are contributing billions in state taxes across the U.S., protecting consumers from dangerous neighborhood bookies and illegal offshore websites, and working diligently with over 5,000 state and tribal regulators and other stakeholders to ensure a commitment to responsibility and positive play,” Clyke said.
The bill has also received public opposition from Rep. Dina Titus, D-Nev., who called the SAFE Bet Act “outdated” and “unwarranted.”
Douglas said his family has been able to get help for his son, but he wants to ensure that others don’t fall down a similar path.
“We as a country should not allow him and others like him to be exploited,” he said. “We should do what is right to limit access to this type of gambling.”
If you are having suicidal thoughts or are in distress, contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.
— CNBC’s Contessa Brewer contributed to this report. More

United will start testing Starlink’s satellite Wi-Fi on its flights early next year.
SpaceX has previously inked deals with Hawaiian Airlines and semi-private airline JSX.
Delta and other carriers have been investing in faster inflight Wi-Fi and offering it for free.

A United Airlines Boeing 737-MAX 8 aircraft departs at San Diego International Airport en route to New York on August 24, 2024 in San Diego, California. 
Kevin Carter | Getty Images

United Airlines said Friday that it plans to offer inflight Wi-Fi from SpaceX’s Starlink for free on its hundreds of jetliners, the biggest inflight internet deal yet for the SpaceX business.
The team-up comes as airlines have been investing in faster inflight Wi-Fi, sometimes offering it for free, in a bid to attract higher paying customers like business travelers.

Delta Air Lines announced in early 2023 that onboard internet would be free for members of its SkyMiles loyalty program. Hawaiian Airlines, which has a deal with Starlink, also offers complimentary inflight Wi-Fi. JetBlue Airways has offered free Wi-Fi for years.
SpaceX also previously made a deal with semi-private airline JSX.
United currently offers inflight internet from a hodgepodge of providers, including ViaSat and Panasonic, and charges loyalty program members $8 and everyone else $10 for access on domestic and short-haul international flights.
The carrier said it expects to have Starlink on its more than 1,000 planes over the “next several years” with the first passenger flights outfitted with the service starting early next year. United said the Wi-Fi will offer “gate-to-gate” connectivity.
United praised SpaceX’s satellite service, saying it provides “internet access around the world, including over oceans, polar regions and other remote locations previously unreachable by traditional cell or Wi-Fi signals,” a selling point for the U.S. airline with the most service over both the Atlantic and Pacific.
SpaceX has steadily expanded its Starlink network and product offerings since its debut in 2020. There are currently about 6,000 Starlink satellites in orbit that connect more than 3 million customers in 100 countries, according to the company. SpaceX initially targeted consumer customers, but has expanded into other markets, including aviation.

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More than 30,000 Boeing workers, members of the company’s biggest unionized group, walked off the job early Friday after staff rejected a new labor contract and approved a strike with a 96% vote.
The work stoppage halts production of most of the company’s aircraft, including its bestselling 737 Max.
The strike is another costly blow Boeing, which is trying to increase output and improve its reputation.

Boeing’s factory workers walked off the job after midnight on Friday, halting production of the company’s bestselling airplanes after staff overwhelmingly rejected a new labor contract.
It’s a costly development for the manufacturer that has struggled to ramp up production and restore its reputation following safety crises.

Workers in the Seattle area and in Oregon voted 94.6% against a tentative agreement that Boeing and the International Association of Machinists and Aerospace Workers unveiled Sunday. The workers voted 96% in favor of a strike, far more than the two-thirds vote required for a work stoppage.
“We strike at midnight,” said IAM District 751 President Jon Holden at a news conference where he announced the vote’s results. He characterized it as an “unfair labor practice strike,” alleging that factory workers had experienced “discriminatory conduct, coercive questioning, unlawful surveillance and we had unlawful promise of benefits.”

Union members cheer during a news conference following a vote count on the union contract at the IAM District 751 Main Union Hall in Seattle, Washington, US, on Thursday, Sept. 12, 2024. 
M. Scott Brauer | Bloomberg | Getty Images

He said Boeing needs to bargain in good faith.
Boeing didn’t comment on his claims.
“The message was clear that the tentative agreement we reached with IAM leadership was not acceptable to the members,” the company said in a statement. “We remain committed to resetting our relationship with our employees and the union, and we are ready to get back to the table to reach a new agreement.”

Stephanie Pope, CEO of Boeing’s commercial airplane unit, told machinists earlier this week that the tentative deal was the “best contract we’ve ever presented.”
“In past negotiations, the thinking was we should hold something back so we can ratify the contract on a second vote,” she said. “We talked about that strategy this time, but we deliberately chose a new path.”

Workers with picket signs outside the Boeing Co. manufacturing facility during a strike in Renton, Washington, US, on Friday, Sept. 13, 2024. 
M. Scott Brauer | Bloomberg | Getty Images

The tentative proposal included 25% wage increases and other improvements to health-care and retirement benefits, though the union had sought raises of about 40%. Workers had complained about the agreement, saying that it didn’t cover the increased cost of living.
The vote is a blow to CEO Kelly Ortberg, who has been in the top job for five weeks. A day before the vote, he had urged workers to accept the contract and not to strike, saying that it would jeopardize the company’s recovery.
Under the tentative agreement, Boeing had promised to build its next commercial jet in the Seattle area, a bid to win over workers after the company moved the 787 Dreamliner production to a nonunion factory in South Carolina.

Read more CNBC airline news

The agreement, if approved, would have been the first fully negotiated contract for Boeing machinists in 16 years. Boeing workers went on strike in 2008 for nearly two months.
The ultimate financial impact of this strike will depend on how long it lasts. Boeing shares fell 4% in premarket trading Friday.
Jefferies aerospace analyst Sheila Kahyaoglu estimated a 30-day cash impact from a strike could be a $1.5 billion hit for Boeing and said it “could destabilize suppliers and supply chains.” She forecast the tentative agreement would have had an annual impact of $900 million if passed.
Boeing has burned through about $8 billion so far this year and has mounting debt. Production has fallen short of expectations as the company works to stamp out manufacturing flaws and faces other industrywide problems such as supply and labor shortages.
A door plug blowout on a nearly new Boeing 737 Max 9 at the start of the year has brought additional federal scrutiny of Boeing’s production lines. 

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Jeep is executing a turnaround plan of the quintessential American SUV brand after five years of consecutive declines in the U.S. market.
The Stellantis brand has a target of selling roughly 1.5 million SUVs globally by 2027, including 1 million in the U.S.
Jeep’s U.S. sales have plummeted 34% from an all-time high of more than 973,000 SUVs sold in 2018 to less than 643,000 units last year.

 Jeep Wagoneer S Trailhawk EV concept
Michael Wayland / CNBC

DETROIT — Stellantis’ Jeep brand is well known for scaling tough terrains, but its latest challenge of achieving 1 million vehicle sales domestically by 2027 will be a steep hill to climb.
Jeep, a coveted brand in the automotive industry, has been in a U.S. sales rut that has included five years of annual sales declines, with 2024 on pace to potentially become the sixth.

Nonetheless, Jeep CEO Antonio Filosa believes the brand’s worst days are behind it and it’s still possible to achieve the 1 million sales target. The company is executing a turnaround plan for the quintessential American SUV brand that he says is already beginning to pay dividends following a 9% sales decline in the U.S. during the first six months of the year.
The plan has included lowering pricing across its lineup, including on high-volume models such as the Jeep Compass and Grand Cherokee SUVs; rolling out special offers such as incentives or 0% financing; and increasing spending on marketing and advertising, Filosa said. It also will include an upcoming roadshow with dealers to address additional problems and concerns.

Such actions can eat into profits, but the brand’s average transaction prices have skyrocketed from less than $40,000 in 2020 to north of $50,000 this year, according to Cox Automotive. Jeep’s average transaction price has been above the industry average since 2021, Cox reports.
“The good thing is that the actions we implemented in the previous months, they are also resulting in important growth as well in the U.S.” Filosa told CNBC during a virtual interview Monday.
Filosa’s comments were made a day before the chairman of the Stellantis National Dealer Council penned a scathing open letter targeting Stellantis CEO Carlos Tavares over the company’s sales losses and other business decisions.

Stellantis sold more than 1.5 million vehicles last year in the U.S., a roughly 1% decline from 2022. That compared to an industry increase of 13% in 2023.

Jeep sales

Filosa said Jeep, which reports sales quarterly, saw U.S. sales rise last month: They were up 28% from August 2023 and 55% from July. Jeep also lowered its vehicle inventory by about 25,000 units during that time. But the brand has a ways to go to accomplish any notable turnaround in sales.
Jeep’s U.S. sales have plummeted 34% from an all-time high of more than 973,000 SUVs sold in 2018 to less than 643,000 units last year. While most auto brands increased sales last year, Jeep was off by about 6%.

The New York Stock Exchange welcomes The Jeep Brand (NYSE: STLA) to the podium, on May 31, 2024. To honor the occasion, Antonio Filosa, Chief Executive Officer, joined by Lynn Martin, President, NYSE Group rings The Opening Bell®.

The most recent declines follow the company ending production last year of the entry-level Renegade and the Cherokee compact SUV — two mainstream models with peak U.S. sales of around 300,000 units annually from 2016 to 2019.
“For Jeep to lose Jeep Cherokee … and Jeep Renegade has been an important hit to us,” Filosa said. “Our market coverage declined from an average of 80% to 45%.”
Filosa said Jeep expects to recover market share “very quickly” and return to an 80% market share coverage, which includes the segments Jeep competes in, by the end of next year, when it introduces an unnamed replacement for the Cherokee as well as new electrified models.

Looking forward

In addition to the termination of the new models, Stellantis’ brands such as Jeep have focused on profits over market share under Tavares’ time as CEO.
Tavares has been on a cost-cutting mission since the company was formed through a merger between Fiat Chrysler and France’s PSA Groupe in January 2021. It’s part of his “Dare Forward 2030” plan to increase profits and double revenue to 300 billion euros ($325 billion) by 2030.
As part of that plan, Jeep is targeting selling roughly 1.5 million SUVs globally by 2027, including 1 million in the U.S.
To achieve such goals, Tavares earlier this year said he has allowed leniency in some pricing, incentives and other financial targets after speaking with the company’s dealers.
Filosa said he is continuing those efforts by meeting with dealers regarding the turnaround initiatives. He’ll participate in a dealer roadshow beginning next month with the brand’s new North American head, Bob Broderdorf.

Stellantis CEO Carlos Tavares photographed next to a Jeep Avenger at the Paris Motor Show on Oct. 17, 2022.
Nathan Laine | Bloomberg | Getty Images

Also assisting Jeep, which is the top seller of plug-in hybrid electric vehicles in the U.S., will be several new vehicles. The brand is launching the all-electric Wagoneer S later this year, followed next year by a Jeep Wrangler-inspired “Recon” SUV and extended-range, plug-in versions of its large Wagoneer and Grand Wagoneer SUVs.
Ahead of such vehicles, Jeep has increased its media spending by 20% compared with the first half of the year, according to the automaker.
“Now it’s time to push, and to accelerate, sales to recover as much as [they] need to do. Next year, obviously, we will talk all growth, since we have new products. … I believe [next year] will be a completely different story,” Filosa said.
Jeep also is attempting to increase the quality and reliability of its vehicles, which have historically ranked below average in third-party rankings. He said this includes delaying launches of its upcoming Wagoneer S and Recon by four to six weeks.
However, building problem-free vehicles is easier said than done in the automotive industry. Jeep on Monday confirmed it is cooperating with U.S. auto safety regulators on an investigation into more than 781,000 newer Jeep Wrangler and Gladiator SUVs after reports of underhood fires.

2024 Jeep Wagoneer S EV

Filosa confirmed knowledge of the probe, but he declined to provide additional details. Tavares earlier this year highlighted quality problems within the automaker, specifically at a plant in suburban Detroit that makes the automaker’s Ram 1500.
“We are very carefully monitoring the evolution of quality of Jeep Wagoneer S in the plant, and Jeep Recon as well,” Filosa said. “The only mandate that the plants have from me is to just deliver the car when it’s in perfect quality.”
The new all-electric SUVs will be produced at Stellantis’ Toluca Assembly Plant in Mexico. The company has not confirmed a production location for the replacement to the Cherokee SUV, which was produced at a now-dormant plant in Illinois.

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Coach’s owner Tapestry and Michael Kors’ owner Capri are in the courtroom this week for a federal antitrust challenge.
The companies are trying to combine into a single company, after announcing the $8.5 million acquisition last year.
The FTC sued to block the deal in April, saying it will lead to higher prices for consumers.

Pedestrians walk past a Coach store and a Michael Kors store.
Scott Olson | Getty Images

Just a few miles from the birthplace of Coach in New York City, a federal judge will soon decide whether its owner Tapestry can become a bag behemoth — in a decision that will weigh big questions about how much consumers are paying for goods and the choices they have when they shop.
Investors, lawyers and reporters have flocked this week to a courtroom in Manhattan for an antitrust trial over a Federal Trade Commission lawsuit that seeks to stop the merger of Tapestry and Capri. The deal, if approved, would put six fashion brands under a single company: Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors. 

Tapestry and Capri announced the $8.5 billion deal more than a year ago, but the FTC sued to block it in April. It argued the combined companies would take away competition and leave consumers with fewer affordable handbag options and employees with worse pay and benefits.
Attorneys for the FTC have argued this week that the merger would harm consumers by putting Coach and Michael Kors — two brands it described as having similar prices and often competing head-to-head — under the same company. Both brands sell directly to customers on their websites and in stores, but also are carried by stores that cater to Americans across incomes including department stores Macy’s and Dillard’s, off-price retailers like T.J. Maxx and outlet stores.
Tapestry and Capri, on the other hand, have argued the deal will allow them to keep up in a trend-driven industry where newer brands and changing consumer tastes are a competitive threat. At the time when the companies announced the deal, Tapestry’s CEO Joanne Crevoiserat told CNBC that it’ll allow Tapestry to reach more customers across age groups and incomes across the global, especially in the luxury and higher-end markets.
The outcome of the antitrust case could shape the outlook for the industry that makes the bags, eyeglasses and apparel that many Americans carry and wear across the country. It comes as Americans increasingly balk at high prices after years of high inflation — and the Biden administration takes aim at mergers in the grocery, technology and apparel spaces.

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Investors are watching the trial closely for how it could affect shares of Tapestry and Capri. Shares of Tapestry are up more than 13% this year. On the other hand, Capri’s stock has tumbled about 21% this year.

Here are key questions that have defined the first three days of the trial, including highlights from some of the testimony:

How fierce is competition in the handbag industry?

In a fast-moving world where a new product can become the “it” bag from a TikTok video or celebrity sighting, Tapestry and Capri have argued that competition is fierce — even for the biggest handbag players.
With the transaction, Tapestry and Capri’s executives have argued the brand could better compete with the wide variety of other retailers and brands that consumers choose from, ranging from fast-fashion brands like Zara and H&M to European luxury names like Burberry and LVMH’s Louis Vuitton.
One of the major debates in court has surrounded who are Coach and Michael Kors’ true competitors. Are they each other’s main rivals, or do they compete with a vast mix of brands that steal away sales? The FTC has defined the relevant market for two brands as “accessible luxury,” a term that Tapestry has used with its investors and board of directors to describe how it offers higher-end fashion looks at a better value.
Yet attorneys for Tapestry and Capri have pushed back, saying that the field of rivals is growing to include more price points.
Crevoiserat said she’s seen that dynamic close to home. Lululemon, known for its popular leggings and other athletic apparel, is the maker of belt bags, a hands-free, fanny pack-like bag that can be wrapped around the waist or slung across the body. The bags have been a hit, especially with younger shoppers.
“What really pains me about that is my daughter has one,” she said. “They’re a meaningful brand.”
In her testimony, Crevoiserat said the competition isn’t just with other handbag or fashion brands. She said the company is fighting to woo consumers who have many ways that they could spend their dollars.
“They could go anywhere,” she said. “They could buy a pair of yoga pants or go out to dinner. It’s discretionary.”
During the trial, attorneys have showed off industry data from market research companies and internal documents, such as consumer surveys and research on the competition. The research has related to not only Tapestry and Capri, but also other fashion brands including Chanel and Rebecca Minkoff.
Attorneys for Tapestry and Capri have argued that competition has intensified, as consumers have new ways to shop and their style preferences change. On the other hand, attorneys for the FTC have said the combined companies would corner the “accessible luxury” market.
Some executives from other brands have also testified on the state of play in the industry. Suwon Yang, Chanel’s head of merchandising for accessories and leather goods, took the stand on Wednesday. She said customers buy from many brands, but Chanel in its own research focuses on how it stacks up against European luxury lines like Saint Laurent and Hermes. She said in her experience, Coach, Kate Spade and Michael Kors have never come up in customer surveys or company conversations about the competition.
She also described the rigor of the craftsmanship behind Chanel’s bags, which she said sets the brand apart and leads to its price points of about $5,000 to $11,000 or even higher. Handbags are made in Italy and France, and for artisans, it takes a decade to make the company’s highest level of handbag.

Would the deal hurt consumers?

The FTC argues the deal would bring more sticker shock for American consumers already facing higher prices on many items.
On Wednesday, economist Loren Smith, one of the FTC’s key witnesses, took the stand and contended that the merger would turn the combined companies into a handbag giant that would raise prices for shoppers and have little reason to invest in sharper styles or better materials. Smith is a Washington, D.C.-based consultant and former staff economist for the FTC.
He laid out financial models and methodology he used to define the market for Tapestry and Capri, and particularly Coach and Michael Kors, saying they primarily compete with other “accessible luxury” players even if its consumers shop with other cheaper and pricier brands. He zeroed in on the handbag market in the U.S., and included common styles like cross-body bags and totes in the calculations.
Ultimately, he said he found the merger raises “significant competitive concerns” and his simulation indicated that it would lead to an average price increase of 15% to 17% for the combined company’s goods and a decrease in the quality of products.
If the two companies became one, he said the combined company would have about 58% market share in the handbag market in the U.S. He said Tapestry could get away with raising prices on Michael Kors handbags since it could recapture lost sales by attracting enough of those same shoppers to Coach and Kate Spade bags.
And he said it wouldn’t need to worry as much, even if Michael Kors’ brand continued to be challenged.
“Once they come together, if Michael Kors continues to decline, some of that decline is going to benefit the Coach brand,” he said.
Plus, he said, the handbag industry has margins of 60% to 80%, a high number that makes the risk of diverting customers to another of their brands or losing customers to other brands less significant.
He estimated annual consumer harm would add up to $365 million per year from a combination of price increases and merchandise that wouldn’t be as well made.
Attorneys for Tapestry and Capri pushed back on how he defined the competition, questioned his calculations and said he did not account for shoppers’ newer habits, such as the ability to buy a Louis Vuitton or Prada bag at a lower price because of the rise of secondhand marketplaces.
They also argued Smith is out of touch on the handbag market. The attorney for Tapestry and Capri noted that he’s only bought one handbag before, and his wife instructed him what to buy.

Why did Tapestry want to buy Capri?

When Tapestry CEO Joanne Crevoiserat took the stand on Tuesday, she said her goal for the merger is straightforward: Putting more handbags in the hands of more customers.
Attorneys for the fashion brands rolled carts of dozens of handbags from the two companies and from competitors into the courtroom on Monday, the day the trial began. Since then, a mix of executives and industry players have taken the stand, including Capri CEO John Idol and Coach CEO Todd Kahn.
In her testimony on Tuesday, Crevoiserat held up a few of the handbags in the room. She spoke about their contrasts and how the bags illustrate the range of brands that Tapestry owns. She said Tapestry benefits from having a portfolio of distinct brands to cater to customers who shop for a variety of occasions and have different senses of style.
She showed off Coach’s Rogue, a maple colored leather tote bag that a customer might use to carry what she needs to the office. Then, she held up another bag, a more playful looking smaller green and white Kate Spade bag that’s made of woven fabric and has been featured in Netflix’s “Emily in Paris.”
Capri has its own distinctive brands too, she said.
Internal documents also flashed on the courtroom screen, showing some emails and slide decks from a more than year long process that Tapestry pursued as it looked for an acquisition target and deliberated whether to buy a still emerging brand or a more established player like Capri. The names of other acquisition targets were redacted, but the code name for Capri was “Comet.”
Crevoiserat said Tuesday that if the deal closes, Tapestry would want to grow all of its brands — especially those of Capri, which has had weaker sales in recent quarters.
“I believe we can inject more relevancy, more vibrancy into the Capri brands,” she said.
Instead of operating as a top-down company, Tapestry is a house of brands, Crevoiserat said. She added Coach, Kate Spade and Stuart Weitzman each have independent teams that select merchandise, set pricing and shape marketing.
As the FTC raises questions about whether the deal will raise prices, she said Tapestry as a whole offers cost-savings benefits that come from having more scale, such as manufacturing and transporting products at a lower price.
She said that way of operating wouldn’t change. She added the high price tag to acquire Capri only makes sense if Tapestry gives the brand both financial support and creative freedom.
“The deal simply wouldn’t pencil if all brands couldn’t grow,” she said.
The antitrust trial continues on Thursday and is expected to run through early next week. Attorneys for the FTC have hinted that other key witnesses are poised to testify, including more executives from Tapestry and Capri and the namesake of one of the top brands in the merger, American fashion designer Michael Kors. More

Airlines are raising their unit revenue forecasts for the third quarter.
Flights are getting more expensive again, according to the latest inflation report.
Carriers have been moderating capacity growth after a glut of flights pushed down fares.

Delta Airlines planes are seen parked at Seattle-Tacoma International Airport on June 19, 2024 in Seattle, Washington. 
Kent Nishimura | Getty Images

Airlines are reporting better unit revenues for the tail end of summer, a sign customers will continue to have to shell out more to fly in the coming months.
Alaska Airlines on Thursday raised its third-quarter profit forecast to a range of $2.15 to $2.25 per share from a previous outlook of no more than $1.60 per share. It also said it expects unit revenue to rise by as much as 2% after previously estimating flat to “positive” unit revenue growth over last year.

Delta Air Lines said domestic and trans-Atlantic unit revenue would be up in September from last year, though it said the CrowdStrike outage in July will mean unit sales will rise no more than 1% compared with a previous forecast of as much as 4% higher for the quarter. Delta has said it expected a $500 million hit from the outage and its aftermath, when it canceled some 7,000 flights.
Alaska said it had a tail wind from the outage, which affected Delta customers more than those on other airlines.
“While capacity remains in line with prior expectations, revenue has performed better than anticipated driven by additional revenue in July related to CrowdStrike disruptions across the industry and stronger performance in August and September,” Alaska said in a securities filing.
Delta’s president, Glen Hauenstein, told a Morgan Stanley conference on Thursday that Delta isn’t seeing a lingering impact on bookings from the outage.

Read more CNBC airline news

Airlines had been wrestling with record numbers of travelers but lower fares and weaker-than-expected pricing power. That appears to be changing.

Wednesday’s U.S. inflation report showed an airfare price index rose 3.9% in August after five consecutive months of declines.
Frontier Airlines said Wednesday that it might break even this quarter, on an adjusted basis, after a previous forecast of margins ranging from -3% to -6%, after it moderated capacity. Last week, JetBlue Airways raised its unit revenue growth forecast for the current quarter because of higher demand and a benefit from the “re-accommodation of customers affected by other airlines’ cancellations due to technology outages in July.”
Airlines from full-service carriers like Delta and United to budget airlines like Frontier and Spirit have been chasing higher-spending travelers with perks like more space on board.
“We are constantly thinking about what we can do to continue to increase that competitive gap with premium products, from improving the food we serve on our planes to improving our loyalty program, to improving our Wi-Fi product, to improving particularly our Polaris product on international first class,” United’s CFO Mike Leskinen said at the Morgan Stanley conference on Thursday.
U.S. airlines have also slowed if not halted hiring altogether this year as aircraft arrive late from Boeing and Airbus, and demand moderates after a massive hiring spree.

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