The union between Tiffany&Co and LVMH, the largest acquisition that the luxury industry would have ever seen and a marriage that came with a €14.5 billion dowry, has been under scrutiny in the past week.
LVMH seemed to be having second thoughts as to the benefit of the acquisition, given the steep costs of the operation. Too many variables have come into being since a prenup agreement was signed in late in 2019.
Among the reasons for which LVMH would have reconsidered the deal are both the looming global recession due to Covid-19, most hard-hit being luxury brands that did not align with a more robust multichannel strategy along with those still favouring bricks and mortar, and the social and political unrest in the US due to countrywide street protests that resulted in the prolonged closure of retail outlets.
What seemed the most strategic alliance only six months ago is now plagued with reconsiderations and opacity, although it appears that LVMH is not going to reconsider the deal. Biding time might not be in the interest of both parties. Tiffany&Co’s shares enjoyed an appreciation of 30% since the potential acquisition was announced last year. The benefit of an alliance with the largest luxury group in the world is evident in the eyes of shareholders who may change their mind should the deal be off. The much-needed digitalisation and diversification of the American brand might be put off, in an increasingly hostile trading environment for luxury.
Tiffany&Co generates most of its revenues from its core business, jewellery, with a little strategic approach to other categories like leather goods or fragrances, lagging behind its direct competitors like Cartier. A partnership with LVMH will bring in the same expertise that helped Bulgari find a clear position in the market with a strategic accent on diversification.
LVMH might be put off by a supply chain that is supported by American based facilities for 60% of its output. However, Tiffany&Co’s appeal is also its significant brand presence in Asia, with 124 retail stores, mostly in mainland China. Despite the intensification of the trade war between the US and China, LVMH is positioned to shift Tiffany towards a non-US made, non-jewellery focussed product mix. China is bouncing back from the impact of Covid-19, and in 2019 Chinese costumers accounted for 90% of global market growth. A change of political administration in the US might be the deciding factor in this union.
