What Does LVMH Get From Buying Tiffany for $16.2 Billion?
It’s engagement season, even for brands—after a month of negotiations, fashion conglomerate LVMH announced on Monday that it officially acquired storied jewelry label Tiffany & Co.
The $16.2 billion deal makes Tiffany the most expensive property LVMH has purchased in its 32 year history. It’s also a nice holiday bonus for the jeweler, which was first listed as $14.5 billion when negotiations were announced in October.
A press release notes that boards of directors for both LVMH and Tiffany approved the sale, which is expected to go through by the middle of next year. Roger N. Farah, chairman of the Board of Directors at Tiffany, said in a statement that, “LVMH proves an exciting path forward with a group that appreciates and will invest in Tiffany’s unique assets and strong human capital.”
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The New York-based retailer currently employs around 13,000 people. Bernard Arnault, CEO of LVMH, is valued at $100 billion, making him the richest man in Europe, and third richest in the world. Through LVMH, he oversees 75 of the world’s most luxurious labels.
Arnault has developed a reputation for gobbling up new acquisitions of decades-old fashion houses like Givenchy, Louis Vuitton, and Dior. This year, LVMH debuted Fenty, Rihanna’s much-anticipated ready-to-wear line.
Tiffany, meanwhile, has spent 182 years becoming synonymous with an inherently American cachet. The brand’s robin egg jewelry boxes are a silent wealth flex, so ubiquitously chic that the color has come to be known as “Tiffany blue.”
The flagship store on 57th street was immortalized in Truman Capote’s 1958 novella Breakfast at Tiffany’s, later adapted into the beloved 1961 film, whose opening scene featured Audrey Hepburn munching on a pastry while looking into the store’s windows—she looking fabulous in black gown and pearls, as the mournful score of ‘Moon River’ played.
In the past month, executives at the two companies have dedicated much lip service to defending the deal as mutually benefitting both buyer and selling. No doubt these conversations will continue in the months going forward.
Tiffany is struggling—last holiday season, sales fell one percent from the previous year. Though the retailer is famous for its extravagant (read: pricey) engagement rings, it has been slow to attract millennial customers or explore popular trends like offering lab grown diamonds. So why would LVMH want to scoop it up?
Though LVMH is no doubt a behemoth and powerhouse in the fashion world, jewelry and watch sales account for just seven percent of its earnings. The company currently owns Bulgari, Chaumet, TAG Heuer, Fred, Hublot, and Zenith. With Tiffany, LVMH gets a foray into a bigger slice of that market—to be specific, 300 stores, located all over the world. The American brands’ popularity in China is no doubt attractive, too.
“LVMH has Bulgari but now with Tiffany, it puts them in a better place to compete with Richemont, who owns Cartier and Van Cleef,” retail analyst Charcy Evers told The Daily Beast. “What’s unique about Tiffany, though, is that it’s not as exclusive, which plays to [LVMH’s] favor. It’s aspirational and has a mix of high and low so it’s more inclusive and millennials are all about this. It’s also a household name and will definitely boost LVMH’s presence here in the United States.”
Not too long ago, the growth of most public retail companies followed a type of script. Brands heavily invested in retail, but with the shuttering of storefronts, names like Coach and Michael Kors who succumbed to the call of the mall were left looking cheap. Instead, Tiffany, which is in the midst of an attempted renaissance, can turn to a bigger conglomerate for help.
“LVMH will give [Tiffany] the investment it needs to reinvigorate the brand,” Evers said. “They will also be able to do so without the scrutiny of Wall Street breathing down its neck, looking for growth. Transformation costs, but Wall Street doesn’t care or like to hear the old adage ‘it takes money to make money.’ Under LVMH, Tiffany can do so without that pressure.”
There is a romanticism in the idea of an established brand staying solo, refuting the corporate maw, and still coming out on top. Unfortunately, clinging to such ideals can also end companies up on the auction block.
Tiffany serves as an example of how a brand saves itself mid-slump, before too much damage is done. But by going to LVMH, it has snubbed the French company’s burgeoning American counterparts like Tapestry (Coach, Kate Spade, Stuart Weitzman) and Capri Holdings (Michael Kors, Jimmy Choo, Versace).
“I would have liked to see the likes of Capri or Tapestry buy Tiffany,” Evers opined. “But perhaps with LVMH they will have more runway. They just have to be careful to maintain the integrity of Tiffany’s brand, which is always the risk in mergers.”
Charles Beckwith, co-host of American Fashion Podcast, noted that merged companies share things like overhead costs—and customer information. “LVMH probably has the world’s most accurate and predictive data on the global luxury market because they are in all those different verticals,” he said. “Plus, they’re a private company, so no one else is getting any data they choose not to share.”
Tiffany probably has a wealth of data when it comes to its current customers, but Coye Nokes, partner at OC&C Strategy Consultants, added that it will now learn more about its European shoppers. “Tiffany will be exposed to data in different geographies,” she said.
Those insights come with a price—by entering into the LVMH “family,” Tiffany has also opted into a risk-controlled environment. “Sometimes, that’s not great when you need flexibility to make quick decisions,” Nokes said. “Taking risks is hard to do as part of a public company.”
But executives at Tiffany, which was already trading publicly before the merger, have experience answering to investors. “When you have to deliver measurable financial increases on a quarterly and annual basis, you’re always thinking short term,” Beckwith said. “That’s why many publicly-held fashion and luxury companies make such poor long-term decisions. They’re trapped in a short cycle.” With LVMH, “Tiffany will be able to make short-term sacrifices in their long-term investment.”
And if acquisitions continue to thrive as one of fashion’s biggest trends, we can bet to see more brands rushing underneath the umbrella of an LVMH-type protector. Nokes predicted a luxury athletic wear label could be the next to cozy up to a conglomerate.
“With the growth that's happening in the casual space, you have players like [Italian sneaker label] Golden Goose, that could be interesting [if it was purchased],” Nokes said. “A company needs to look at the product portfolio, what category they want to be in, and see where the strengths of a brand lies. They won't just buy anything.”
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