Consolidation in the market is entering the "middle phase" as we see struggling companies who can't survive on cheap working capital loans anymore throwing in the towel. Many of those working capital loans have recently annualized and are coming due over the next 6 months.

What do I mean?

Most retailers and brands don't pay cash upfront from their reserves to finance the next season's inventory. Because that inventory has a historical rate of return based on the history of the brand, they are able to leverage that history to minimize the effect on their current cash flow, in exchange for being able to potentially even larger inventory purchases -- in exchange for a reasonable interest rate.

Or at least, that was the idea in ZIRP times. In the last year, that party has ended but the "tail" on some of those agreements is still out there and many have just expired.

This means brands and retailers have a tough choice to make.

1 - Grow/expand slower, because you cannot afford the interest rate that might afford you extra leverage (i.e. at some point, your growth rate is capped by the physical limits of your inventory - assuming you can drive infinite demand).

2 - Gain margin in other areas to continue purchasing at the same rate.

This is likely never going to reclaim costs as fast as interest rates have risen recently. Not to mention, supply chain costs have risen even faster.

3 - Combine forces with another brand that has more leverage.

Especially if you have hit the rocks in recent years, and are struggling with profitability, there is an end to that road at some point -- even if you have raised a lot of money.

In the case of Tapestry, they have invested significantly in their marketing and technology infrastructure in the past several years. When you do that, what is the natural tendency?

Like any investment, you want to leverage it as much as possible. So adding Capri's set of brands (Michael Kors, Versace, Jimmy Choo) to Tapestry's existing brands like Coach, Stuart Weitzman and Kate Spade will attempt to help them scale.

So the big get bigger.

The big question is, how much will more brands help -- and how much will it hurt? Consolidation usually means layoffs, centralized decisionmaking and departments which could cause some of these brands to suffer too.

Still the broader market lesson here is you want to give yourself options. It's also cyclical too.

After a relative dip in M&A in the first half of the year, I do think over the next year things will accelerate.... .until the next cycle, in which can divestiture will be the watchword :-)