LVMH buying Tiffany for US$16.2 billion: brand implications

What happened?

On Monday, the french luxury conglomerate, LVMH, confirmed its acquisition of the American jewelry company, Tiffany & Co., for US$16.2 billion, according to Bloomberg. Both have agreed to the deal which should be finalised by mid-2020. The acquisition — twice as large as LVMH’s Dior acquisition deal in 2017 — will be largest in the group’s history.

Bottom line

It’s worth noting that during the extended negotiations, LVMH increased its original offer of $14.5 billion up to the final agreed price of $16.2 billion. Clearly, LVMH wanted Tiffany to be part of their luxury group, and market movement signals that the Tiffany acquisition was a good move for LVMH. Also, on November 17, amid the negotiations, Tiffany raised its entire collection price 10 percent as part of its annual price increase.

Implications for China

The acquisition happened at a time when Tiffany’s sales are being challenged by the decline of Chinese tourists shoppers due to the continuing trade war and the depreciation of Chinese currency. Last year, however, Tiffany experienced significant growth thanks to CEO Alessandro Bogliolo and creative director Reed Krakoff’s innovative plan, but so far this year things have continued to slow down.

According to Tiffany’s Q2 revenue call, Bogliolo stated that sales from mainland China experienced double-digit growth, showcasing the growth potential of the brand in China. Bogliolo also claimed that they are bullish about their investments in China and are planning to further develop the Chinese consumer market.

For LVMH, the acquisition of Tiffany is yet another chance to enter the hard-luxury category, which generally remains solid during economic uncertainty. It’s also a strategic move for them to compete with Richemont, who owns high-end jewelry brands such as Cartier and Van Cleef & Arpels. Bernard Arnault, LVMH’s chairman, has already lined-up a new strategy to boost Tiffany. In the interview with Bloomberg, Arnault said, “Tiffany is an iconic, emblematic brand of America, with a great history. The weakness is in Europe — and that we know what to do and how to address it. And there is great potential in China.”