LVMH / Tiffany’s: Luxury Battle Diaries
Disclaimer: The opinions in this article are entirely my own and do not reflect investment recommendations.
The series of unfortunate events in 2020 is never-ending, and the latest victim seems to be Luxury Fashion. In late 2019, LVMH announced its €14bn acquisition of Tiffany’s. However, once Covid-19 hit, things got a little complicated for the seemingly perfect duo. Tiffany’s announced its plans to sue LVMH for trying to break out of this marriage, while LVMH is now trying to countersue? Talk about D-R-A-M-A.
As a quick history lesson, LVMH became a luxury powerhouse through takeovers of the world’s most cherished luxury brands. Louis Vuitton, Dior, Givenchy, Fendi — you know the type. The company also has the “Influencer” space covered with Moët Hennessy in Alcohol and Sephora in Cosmetics. While it owns some luxury jewelry brands already (e.g. Bulgari, Hublot), the Tiffany’s acquisition would have been one of the largest luxury fashion acquisitions, the crown jewel in their portfolio. So, WHY oh why then did this love story come to a halt?
The LVMH / Tiffany’s deal was expected to close in November of this year. LVMH claimed that due to the drop in Tiffany’s sales of 37%, the business had suffered greatly. Interestingly enough, LVMH also suffered a 38% drop in sales in its Jewelry/Watches business. Kettle calling the pot black, and all that. This begs the question — was it really Tiffany’s performance that killed the deal, or does LVMH believe it can score a better price given the current economic environment?
This blogger thinks the relationship between the United States and France might be playing a bigger role than the financials. Back in 2016, Tiffany’s had publicly announced that its flagship location next to Trump Towers in NYC was actually deeply suffering in sales. Trump Towers is often the location of politically driven protests on the issues of race, class and economic inequality. None of which inspire customers to splurge on some diamonds. Take into account that the French (and LVMH) are known for upholding a superior standard of aesthetics, and it becomes clear that this is not the hottest look for LVMH. The world isn’t exactly looking up to America at the moment, with the catastrophic ways that the country has handled its Coronavirus response (and uh, honestly everything happening in the country’s economic, political, and social climate. And the actual climate). As a result, it isn’t surprising that LVMH might just not want to get its feet wet in a place that is honestly just its own hot mess at the moment.
Let’s face it, 2020 has messed up everyone pretty badly and the luxury fashion industry is not immune. There could be many other reasons why the French want to get out of this deal. But it begs the question if pulling out of the deal had anything substantial to do with Tiffany’s core business performance?
The trial between the French powerhouse and American jeweler is set for January 2021, so there is some time until we get all our questions answered. The result of the deal will most likely set the stage for luxury fashion M&A. Could we see a rise in acquisition activity within regions (to avoid cross-border issues)? Or, will the pandemic ultimately put a standstill in M&A for this sector? One thing is for certain — as designers race to keep up with the yearly fashion calendar and pay tribute to the creativity of their brands, they must also put focus on the cash flow of the businesses themselves, if for nothing else, but to make sure that they don’t end up as another death from the Covid-19 pandemic.
