In a surprise move, LVMH made an unsolicited $14.5 billion offer for Tiffany and Company. Confirming that the offer has been made, LMVH said in a statement that its discussions are still in the early stages and that there is no assurance that an agreement will be reached.
According to Reuters, this initial offer valued at $120-per-share was rejected with Tiffany making a $16.9 billion or $140-per-share counter offer. Reuters reports that LVMH is still interested and it has plenty of cash on hand to sweeten the deal. Arnault is the world’s second-richest billionaire, after Jeff Bezos.
Tiffany also confirmed discussions, stating it is carefully evaluating the offer to determine what is in the best interest of the company and its shareholders. It added, “Tiffany is successfully executing on its business plan and remains focused on achieving its goal of becoming The Next Generation Luxury Jeweler.”
Tiffany may be executing on its business plan, but reaching that goal of being the “Next Generation Luxury Jeweler” seems to be moving further away. Tiffany’s CEO Alessandro Bogliolo understands what it will take to get there. He cut his teeth in luxury at Bulgari leaving not long after it was acquired by LVMH in 2011, then moved to LVMH’s Sephora retail brand, and onto Diesel.
But at Tiffany, he may not have the talent and resources, or enough of both, to achieve his vision. “Tiffany has a lot of brand equity issues,” says Daniel Langer, CEO of luxury consultancy Équité. “Its attempts over the last couple of years to fix that have been mediocre at best.”
Tiffany must return to true luxury
What’s indisputable is that Tiffany will benefit greatly from this deal. Not because of the financial gain (though that will be nice), but because Tiffany is and has been for too long a luxury brand just treading water. More than a cash infusion, Tiffany needs the creativity, design excellence, and disciplined approach to luxury that Arnault has instilled at LVMH.
“It’s a huge opportunity in my point of view for Tiffany to get the injection of talent, capital, and creativity needed to bolster its brand equity,” Langer continues.
Tiffany was founded in 1837, so its legacy goes back farther than Louis Vuitton’s founded in 1857 or Bulgari’s in 1884, the leading luxury jewelry brand currently in LVMH’s portfolio. And it has a deeper heritage than Cartier founded in 1847, owned by Richemont, one of LVMH’s chief competitors.
Yet, while Louis Vuitton, Bulgari, and Cartier have carefully guarded their luxury legacies, Tiffany’s has slipped. It extended its product line too far into sub-luxury range with sterling silver at a more affordable price point. The “luxe for less” positioning may help short-term sales, but not long-term luxury brand value. And some of its other recent initiatives, like its Everyday Objects sterling and enamel giftware collection, is a head-scratcher.
The opportunity to tap LVMH’s profound understanding of what it takes to be and uphold a 21st century luxury brand will help reverse Tiffany’s current stasis in luxury circles. “This deal offers Tiffany a way to leverage the intelligence and best marketing practices found in the LMVH portfolio,” believes Greg Furman, CEO of The Luxury Marketing Council. “Its an incentive to look anew at their vision, positioning and marketing strategies.”
One area where Tiffany has excelled is its digital profile. CEO and founder of NewStore, Stephan Schambach says in a recent study it conducted measuring omni-channel excellence across 200 brands, it found Tiffany & Co ranked No. 6 overall. Louis Vuitton was right above it at No. 4. On two other measures, however, Tiffany did even better. In consumer engagement it was No. 3 and in associate mobility No. 1.
“In customer engagement, Tiffany shines as it combines digital-savvy and white-glove customer service. In its stores.” Schambach says. “Tiffany maximizes its luxury by using every square inch as selling space. It does so by giving all store associates a tablet that they can use to help customers and personalize the shopping experience.”
LVMH will also extend Tiffany’s global reach. “It will have a stronger presence in Europe, no doubt about it,” shares Keith Daniels, partner with Carl Marks Advisors, and adds LVMH has been a very good parent for the Bulgari brand.
“They did very good things with Bulgari when they bought it . They helped turn around the business, improve its margins, and grow the topline. Given LVMH’s strength, its organization and its reach globally, Tiffany will have a great future,” Daniels adds.
LVMH needs Tiffany’s America
While this deal is a big win for Tiffany, LVMH will get a lot from the deal as well. “The luxury goods conglomerate has made no secret that it wishes to expand its brand stable with more jewelry brands,” says Jeff Prine, consultant and commentor in luxury. “Tiffany would be the crown jewel in LVMH’s stable of jewelers that includes Bulgari, Fred and Chaumet. LVMH will be able to capitalize on Tiffany’s quest to be a global luxury brand.”
Lisa Goller, a communications strategist, concurs that LVMH needs the Tiffany cache. “A successful bid would solidify LVMH’s position as a global luxury powerhouse. LVHM would build a stronger jewelry category to give discerning luxury shoppers more variety and gain greater access to affluent American shoppers,” she says.
And here is where LVMH stands to gain the most: more American luxury consumers. “In a data-driven world, access to Tiffany’s client base is priceless as they expand how they serve customers,” says Christopher P. Ramey, Affluent Insights.
Year-to-date Tiffany has almost ten times the amount of desktop traffic to its website compared with Bulgari, 6.5 million to 680,000 for Bulgari. Its visitor duration is longer too, 5:20 minutes compared to 3:20 minutes, and its bounce rate is much lower 23% to 31%. And on a global basis, Tiffany gets nearly 75% of its traffic from the United States, as compared with only 21% for Bulgari. This according to statistics compiled by SimilarWeb.
The Tiffany acquisition would bolster LVMH’s share in the U.S. where it could definitely use it. In 2018, less than one-fourth of LVMH’s €46.8 billion in revenue came from the United States. Asia, excluding Japan (7%), accounted for 29% by comparison.
In its watches and jewelry group, LVMH’s performance in the U.S. is even weaker. Only 9% of that group’s €4.1 billion in revenues came from the U.S., compared with 12% in Japan and 35% in Asia.
Yet, when viewed through the lens of where the most affluent consumers are to be found, the United States stands head and shoulders above any other market. Credit Suisse’s 2019 Global Wealth Report numbers American millionaires at 18.6 million. China trails far behind with 4.5 million, as do Japan 3.0 million, United Kingdom 2.5 million, Germany 2.2 million, and France 2.1 million.
Yes, China’s population dwarfs the United States, 1.4 billion adults to the 328 million in the U.S., but the United States has it all over China when it comes to its concentration of wealth.
“Imagine if LVMH has personal concierges for each HNW customer in a database that tells them what they might want to buy next,” Ramey says. “In our crazy world, it’s safe to say HNWI will be more discreet and demand more privacy. Having personal concierges for a growing group of American HNWI will give them confidence to spend more with Tiffany and all the other LVMH brands.”
American is LVMH’s next frontier
Based upon this move on Tiffany, the premier legacy luxury brand in the U.S., as well as from other recent initiatives, including LVMH opening a leather-goods factory in Texas along with its investment in LA-based Madhappy fashion brand, Arnault is looking into his crystal ball and seeing the brightest future for luxury right here in the U.S.
At the recent ribbon-cutting ceremony attended by President Trump, Arnault is reported to have said, “The U.S. market is number one for LVMH in the world.” A successful acquisition of Tiffany will only make LVMH stronger in the United States and the world. With it LVMH will also gain control of two corners of premier NYC real estate on Fifth Avenue.
“Tiffany has its roots and cultural heritage as an American brand,” shares Paula K. Peterson, Crown Luxury Consulting. “While it certainly has become a global force, its ‘Breakfast at Tiffany’ image still drives the mystique, which may or may not align with the LVMH vision.”
“This is a great and powerful initiative that is sending a clear message to Richemont and Kering that LVMH is stepping up its game. It is looking more creatively at ‘out of the box’ initiatives liked Rihanna’s Fenty and correctly seeing the U.S. as a still nascent luxury market with significant potential,” Luxury Marketing Council’s Furman concludes.