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Wednesday, October 13, 2021
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Under LVMH Leadership, Tiffany Is Poised To Double Sales In 5 Years

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Ever since news broke that LVMH Moët Hennessy Louis Vuitton was acquiring Tiffany & Company
TIF
, speculation has swirled about how the giant French luxury conglomerate would fold in this iconic American brand. Aside from some bland corporate messaging, LVMH has been mum on its plans.

But one thing is for sure, after a protracted and contentious battle to acquire the brand, LVMH intends Tiffany to be a crown jewel in its stable of luxury brands, having paid more for it than any of the 75 other brands it ever acquired.

Tiffany will join Bvlgari, Tag Heuer, Hublot and Chaumet in the company’s Watches and Jewelry reporting segment. Impressive brands all, but not strong enough to make the watch and jewelry business little more than a rounding error in the company’s books.

Pre-Covid, the Watches and Jewelry segment generated €4.4 billion in revenues, the smallest reporting segment and only 8.2% of total €53.7 billion in sales. In 2020, the segment dropped 24% to €3.4 billion, or 7.5% of €44.7 billion corporate.

Tiffany, with revenues of $4.4 billion in fiscal 2019 and $2.2 billion through third quarter 2020, is expected to nearly double sales in the segment and push it above Perfumes and Cosmetics (€5.2 billion in 2020) and Wine and Spirits (€4.8 billion).

And doubling the watch and jewelry segment is only the beginning. LVMH has big plans for its biggest acquisition.

“In five years, LVMH is going to double the business, no doubt about it,” predicts Alain Huy, founder of New York-based AH Luxury Consulting. “Tiffany is going to be the biggest jewelry brand in the world, so Cartier and Van Cleef [both owned by LVMH-rival Richemont] should be worried.”

Huy knows what he is talking about. He worked for ten years at LVMH, launching its watch and jewelry business in Asia-Pacific, followed by three years with Graff Diamonds and two years as President Kering Jewelry Americas.

Given his extensive experience in the jewelry industry and insider knowledge of LVMH, Huy outlines what he sees next for Tiffany as it moves forward under the direction of LVMH chairman and CEO Bernard Arnault.

Out with the old, in with the new

The first and most visible sign of the LMVH-izing of Tiffany was installing a trusted team of managers to oversee the brand. Out went Alessandro Bogliolo as CEO and after a short transition, Reed Krakoff, artistic director, and Daniella Vitale, chief brand officer, will be out too.

In their place comes Michael Burke, CEO of Louis Vuitton who will add Tiffany chairman to his span of responsibilities, Anthony Ledru as Tiffany CEO and Arnault’s 28-year-old son, Alexandre Arnault, as vice president of product and communications.

Ledru has held senior management positions with LVMH for the past six years and before that was senior vice president of Tiffany North America. However, he left Tiffany under a cloud.

Alexandre Arnault, besides being tutored by his father, has an impressive resume of his own. He’s led Rimowa luggage brand since its acquisition in 2017 and before that worked in private equity with KKR and as a strategic consultant with McKinsey & Company.

These immediate and decisive management replacements contrast sharply with LVMH’s usual practice of keeping existing management in place for some time. Take its acquisition of Bvlgari in 2011. Then CEO Francesco Trappani stayed on with LVMH until 2014.

“LVMH usually takes a softer approach and keeps management on longer for a smooth transition. It is a French approach to acquisitions. But this was a very American style of taking over a company,” Huy observes. “I see it as a way of saving face after the brutal battle to acquire the company.”

Strengthen its global footprint, spread risk

Right now, LVMH is heavily dependent upon Asia, particularly China, for revenues and growth. Asia currently brings in 34% of sales and the U.S. 24%.

By contrast, Tiffany generates its largest share of revenues in the Americas, 43% in 2019 compared with 28% in Asia-Pacific. In sheer spending power, the U.S. represents a much larger potential market for LVMH, with 18.6 million millionaires compared with 4.4 million in China.

“Tiffany is a good way for LVMH to diversify risk in case of a slowdown or any economic crisis in China or Asia,” Huy says.

Besides strengthening LVMH’s foothold in the U.S., Tiffany will gain more access to the best store locations in the U.S. and internationally.

“LVMH adds negotiating power with landlords by having a stable of brands,” he says. “You can get the best space in the mall, then crush with terms and conditions, whereas with Tiffany alone, you can’t be as strong. This will be important immediately and have some effect on the bottom line without increasing the topline.”

Huy foresees Tiffany’s footprint to shuffle to better locations, as well as management making swift decisions about closing unproductive stores and renovating others.

“Some Tiffany stores are still trapped in the 1980s,” he observes.

Localize the product mix

Supported by LVMH’s extensive supply chain, Tiffany will be more agile in getting the right products into the right markets.

“To be successful, Tiffany must work to be laser focused to develop collections specifically for each market,” Huy advises. “It can’t impose its U.S.-centric connections all across the world.”

Tiffany, with its heavy reliance on silver in the U.S., doesn’t have the cache of other luxury jewelry brands, like Cartier or Van Cleef.

“There is work to be done in its perception,” he continues. “The world is big enough for Tiffany to specialize regionally, say with engagement rings, which are solid in Japan, diamonds in Asia, and gold in Europe and then continue with silver in America. Silver is just too important to the brand to tune it down, especially in the U.S.”

Search inside the blue box

While Huy says LVMH always retains an acquired brand’s essential DNA, there is work to be done on Tiffany’s.

“Yes, it’s one of the most popular brands in the U.S., in terms of sales and prestige, but there is no iconic product,” he says. “Its icon is the little blue box – its packaging. When you think of a luxury brand, you think of an iconic product. But when you think of Tiffany, you think of the packaging outside. They need to go inside the box and discover a product. ”

He points to Hermes and the Birkin bag, Chanel and the little black dress and Louis Vuitton and its monogrammed luggage. Tiffany doesn’t have that kind of rich connection.

“It’s an oddity of the Tiffany brand. It brings in $4 billion but you can’t define it by something besides the color of the box or a movie,” he reflects.

Perhaps the Tiffany T1 collection is the company’s attempt to find that iconic product, but not all are convinced the design alone is enough to be an iconic, brand-defining image, despite strong sales.

No big-name designer needed

In answer to a final question, Huy doesn’t see the need for LVMH to go outside the company to replace Reed Krakoff as artistic director. LVMH has enough talent in-house to lend and if that isn’t enough, it can look outside for collaborations. Tiffany will have its pick of the best collaboration partners going forward.

“Personally, I don’t see the need for Tiffany to bring in another artistic director, like is common at a fashion brand but not in jewelry. If you look at Cartier, Van Cleef or Graff, they don’t have a famous designer,” he shares.

”What Tiffany needs to do is be more focused on developing its collections, price-point by price-point and layer-by-layer and get them into the appropriate market. Maybe at some point they will want a head designer. But LVMH has enough talent that it doesn’t need to hire it in,” he concludes.

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