Tiffany and LVMH are no more?

Could 2020 get any worse? Coronavirus, the ongoing lockdowns, the end of Keeping up with the Kardashians, and now LVMH is attempting to renegotiate its prize deal with Tiffany, putting the deal at deep risk of being called off entirely.

To be completely honest, it makes sense. In brief: the terms of the 16.2 billion dollar deal were set before the coronavirus, and as a result Arnault (who is said to be no stranger to playing hardball) and his team are citing “recent developments” which prevent the deal from closing. These developments include a request from France’s Foreign Affairs Ministry to delay the deal past its closing deadline due to a US government plan to impose tariffs on a variety of French and European goods. That’s all well and good, but this is all in a pretty obvious attempt to pull Tiffany back to the negotiating table. As a response, Tiffany are suing LVMH.

Again, as it makes sense for LVMH to try to re-negotiate, it also makes sense for Tiffany to sue. The deal has been set, and the continuous delays are out of line and fairly unambiguous in intent. I hope the deal doesn’t fall through, but right now the picture looks ugly, and continues to get uglier.

But why does it even matter? For all intents and purposes Tiffany is a reasonably un-chic brand in the world of high fashion. It has a stuffy image and has been trying to re-invent itself for a few years now. So why even bother to add this brand onto the LVMH portfolio? Especially at such an inflated $16.2bn price (which for LVMH would be their largest portfolio acquisition ever).

I would argue that Tiffany still represents a massive opportunity for LVMH even in troubled times. Firstly, Tiffany is one of the rarer players out there, and is one of the extremely few US ‘heritage’ brands. It may even be the only true one. Founded by Charles Lewis Tiffany and John B Young in 1837, the brand effectively created the marketing around the diamond engagement ring, and popularized that idea. Welcome to the rise of Kay Jewellers, Macy’s bridal, and the entire engagement industry. Second, the brand is iconic for popularizing key colors and images i.e. Tiffany Blue/Breakfast at Tiffany’s, which are deeply embedded into the American popular psyche. Those kind of deep brand associations are rare, and worth paying up for.

To follow, Tiffany is loved by consumers. The brand can be considered more than a mere brand. It is a cultural icon, and even reaches the status of Lovemark. The brand and its symbols create emotional connections that transcend the products, and the brand has an American nostalgia that means that it continues to be deeply respected, cherished and loved. If I were Arnault, I would be fighting to acquire Tiffany too, and I would view it as a great big diamond in my already embellished crown (please excuse the poorly executed Tiffany metaphor).

Lastly, the brand, though a little fusty and out of vogue, is still highly consumable. Tiffany at this point is accessible luxury. It has a heavy consumer base of US teens and twenties customers, engagement customers, and is still extremely popular in LATAM. Yes, it is old world minded, but it has a valuable and entrenched space in the US luxury ecosystem. The US in luxury is a thing unto itself, and having entry level price points and available access are key in this market. It is true, the brand is in dire need of a make-over or a make-up, but powered by the capital structure and inventive marketing of LVMH, this brand could be virtually unstoppable.

Anyway, let us see what happens, and let’s hope these two can work it out.