LVMH Acquires Tiffany & Co.: Why It’s A Prudent Match

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LVMH (Moët Hennessy – Louis Vuitton SE) is acquiring Tiffany & Co. for approximately €14.7 billion (or $16.2 billion).

For LVMH, this will strengthen its presence in the US market and position in the jewelry category (alongside Bulgari), making it more competitive with the likes of Richemont (which counts Cartier among its brand houses or “maisons”).

For Tiffany & Co., it presents an opportunity to turn around its fortunes after struggling with growth over the past few years. By joining LVMH, Tiffany & Co. will benefit from the group’s:

  • Strategy that puts brand longevity first. Unlike a private equity house, where objectives are dominated by the need to increase returns year on year, luxury groups like LVMH can take a longer-term view. Sales, of course, are an objective, but the brand itself matters at least as much, if not more. Aided by the nondisclosure of a specific brand’s performance, brands under a luxury group umbrella are able resist short-term actions that would boost sales at the expense of the brand in favor of actions that maintain the long-term success and health of the brand.

Putting the brand first is the strategic attitude that helps brands like Louis Vuitton stand the test of time, but it can also contribute to delayed reactions. This includes luxury brands’ hesitance to embrace digital commerce. Now, luxury brands are being forced to play catch-up in the face of increasingly digitally savvy luxury consumers and the success of multibrand online powerhouses such as Net-a-Porter (YOOX Net-a-Porter, now part of Richemont) and Farfetch as well as the ongoing global growth of online luxury sales.

  • Ability to invest in infrastructure and technology for digital transformation. Forrester forecasts that the global online luxury retail opportunity — including accessories, beauty and fragrance, clothing, jewelry and watches, and shoes — will reach $78 billion by 2023, more than double the $35 billion mark in 2018. The rise of digital commerce within luxury calls for steep investments in infrastructure and technology. Alessandro Bogliolo, CEO of Tiffany, said of the acquisition, “This transaction, which occurs at a time of internal transformation for our legendary brand, will provide further support, resources, and momentum for those priorities as we evolve towards becoming the next-generation luxury jeweler.”

For a lone luxury brand, this investment is a tall order, making even more appealing the prospect of joining a luxury brand group with financial muscle. Over the past few years, we have seen Kate Spade become part of Tapestry and both Jimmy Choo and Versace part of Capri Holdings. As part of LVMH, Tiffany & Co. will benefit from investment as well as synergies from shared systems and resources at a group level.

  • Deep luxury expertise. LVMH’s deep understanding of luxury and track record of success will bolster Tiffany & Co.’s brand cachet. LVMH has experience with a range of different luxury brands (from younger luxury brands to long-established and couture luxury brands), understanding that, to preserve a luxury brand, demand must outstrip supply no matter the economic situation.

Overall, the acquisition by LVMH is a good opportunity for Tiffany & Co., but it is not the panacea for all its problems. Luxury brand maisons across the board (and across LVMH) face a challenging journey. To meet the changing expectations of digitally empowered customers, the Tiffany & Co. team must reevaluate the combined role of digital touchpoints and stores in the branded customer experience. To do this effectively requires a change to established business models, processes, and systems and, ultimately, the ability to be not just brand-obsessed but truly customer-obsessed.

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