【New York, US】Tiffany, Served as Breakfast for Others

The development history of luxury giants is essentially a history of vigorous mergers and acquisitions.
Tiffany, over 180 years old, remains as fresh as a young girl. Now, this Tiffany blue, bursting with youthful charm, has caught the eye of the world’s largest luxury group, LVMH. An offer of $14.5 billion, all in cash, demonstrates full sincerity.
For LVMH, Tiffany’s appeal in the high-end jewelry sector is immensely tempting. Acquiring it would provide a powerful new card to directly compete with Richemont and Kering.
However, this gold-encrusted olive branch does not seem to have instantly won Tiffany’s favor. According to the latest information from insiders, Tiffany is expected to reject LVMH’s acquisition offer, considering it undervalues the company.
Nevertheless, the “games” among giants often feature dramatic twists and turns. Before the dust settles, everything remains in flux.
On October 28, market rumors suggested that LVMH, the world’s largest luxury group, plans to acquire the American luxury jewelry brand Tiffany & Co. (hereinafter referred to as “Tiffany”).
The Wall Street Journal, citing informed sources, reported that LVMH proposed an all-cash offer of $120 per share, valuing Tiffany at approximately $14.5 billion.
If this deal is finalized, it would become LVMH’s largest acquisition ever, far exceeding the $7 billion spent to acquire Dior’s fashion business in 2017.
Tiffany was born in New York, USA, and has a history of over 180 years. It gained global fame as a jewelry and watch brand through the movie “Breakfast at Tiffany’s,” with the Tiffany Blue Box being its iconic symbol.
According to financial reports, for the fiscal year ending January 31, 2018, Tiffany achieved record performance through a youth-oriented strategy, with sales increasing by 7% to $4.4 billion and comparable sales growing by 4%.
During the same period, Tiffany’s net profit surged by 58% to $586 million, with a total of 321 stores worldwide. Sales in the Americas reached $2 billion, making it Tiffany’s largest market.
According to LVMH’s official website, the group currently owns six jewelry and watch brands—Bvlgari, Chaumet, Fred, Hublot, TAG Heuer, and Zenith—primarily targeting the European market.
Bringing Tiffany into the fold would undoubtedly accelerate LVMH’s expansion in the United States—its second-largest market after Asia—and further broaden its moat in the high-end jewelry sector.
Financial reports show that in 2018, LVMH’s total annual revenue was 46.826 billion euros, with a net profit of 6.354 billion euros. Among these, the watches and jewelry segment developed rapidly, with sales increasing by 12% year-on-year to 4.123 billion euros; operating profit surged by 37% to 703 million euros, the fastest growth rate among all departments.
Despite this, this business still contributes relatively little to LVMH’s overall performance, accounting for only 9% of total revenue. This represents a certain gap compared to similar businesses of its two major competitors, Richemont and Kering.

From the chart above, it can be seen that the Richemont Group owns over ten jewelry and watch brands, including Cartier and Van Cleef & Arpels.
For the fiscal year ending March 31, 2019, sales of Richemont’s core jewelry products reached 7.083 billion euros, a 10% increase year-on-year. The operating profit of the two major brands, Cartier and Van Cleef & Arpels, grew by 16% to 2.229 billion euros, surpassing the total operating profit of LVMH’s entire watches and jewelry business.
The Kering Group, on the other hand, owns brands such as Boucheron and Qeelin.
It is worth noting that Kering’s core brand, Gucci, officially launched a high-end jewelry series this year and opened its first boutique at Place Vendôme in Paris, France. Gucci is the growth engine of the Kering Group, with its luxury division achieving a growth rate of over 20% for eight consecutive quarters, significantly outpacing LVMH’s fashion and leather goods division (which saw a 15% sales increase last year).
In addition to competitive pressure from Kering and Richemont, LVMH’s potential competitors in the high-end jewelry field also include major players like Prada and Giorgio Armani.
Even though signs of a melee are emerging, luxury industry analysts believe that the jewelry market, overall, has not yet been dominated by any single brand. For renowned fashion brands, the timing for investing in the jewelry sector is ripe.
This is precisely the key reason behind LVMH’s heavily funded olive branch to Tiffany.

Although the outcome of LVMH’s acquisition of Tiffany remains uncertain, the story of luxury groups acquiring single brands is not new in this circle.
Looking back at the development history of luxury giants, it is essentially a history of vigorous mergers and acquisitions.
During the process of globalization, faced with increasingly large operational systems, many family-operated brands encountered pressures in capital and management structure, leading to development bottlenecks. This ushered in a peak period of acquisitions, mergers, and IPOs for luxury brands.
Tiffany went public in 1987, followed by LVMH (1987), Richemont Group (1988), and Kering Group (1988) entering the luxury industry and going public (currently, the managing families of these three groups are not the founding families of the luxury brands).
From this point on, the luxury industry entered a new stage of development, with profitability and return on investment becoming important indicators for luxury companies.
By the end of the 20th century, to strengthen traditional businesses like fashion and leather goods and enhance operational capabilities, LVMH entered the jewelry and watch field by acquiring TAG Heuer. After the financial crisis, it further strengthened this department, achieving a layout from soft luxury to hard luxury.
Hard luxury, represented by jewelry and watches, targets high-net-worth individuals and exhibits different cyclical characteristics compared to soft luxury (primarily fashion and leather goods, which are less cyclical, highly seasonal, produced in limited quantities per style, and have fast inventory turnover). A diversified business portfolio helps LVMH manage fluctuating business risks.
Subsequently, the jewelry and watch industry underwent two rounds of consolidation. The first consolidation shifted the industry from a stage of free competition to oligopoly. After the second consolidation, the rankings of major players in the industry were largely established.

After two rounds of consolidation, LVMH’s jewelry and watch business grew from nothing to gradually become the third-largest in the industry. The biggest driving force behind this was the acquisition of Bvlgari in 2011.
On June 30, 2011, Bvlgari was consolidated into LVMH’s accounts, directly driving a 97.8% growth in sales revenue for LVMH’s jewelry department that year. Its revenue share also increased from 4.9% in 2010 to 10%.
This merger not only brought significant growth in revenue and profit but also strengthened LVMH’s business短板, propelling it into the ranks of the world’s top jewelry and watch groups. This growth momentum has continued to this day.
Data shows that, except for 2014 when it was affected by declining demand in the Chinese market, LVMH’s jewelry department’s revenue and profit grew rapidly during other periods. However, compared to its peers, this report card still falls short.
In 2016, LVMH’s jewelry and watch department revenue was 4.8 billion euros, while Richemont’s was 9.3 billion euros and Swatch’s was 6.9 billion euros. LVMH’s revenue in this department was half of Richemont’s and two-thirds of Swatch’s.
In terms of profitability, particularly net profit margin, Richemont, which focuses on watches and jewelry, outperforms.
Since 2011, Richemont’s net profit margin has consistently been higher than that of LVMH and Kering, staying above 11%. In the first half of 2017, with the macroeconomic recovery and an overall positive luxury consumer market, Richemont’s net profit margin reached 17.4%. Its jewelry business contributed over 60% of revenue, surpassing the watch business to become the most important income source.
From a development perspective, Richemont’s ability to enjoy a higher net profit margin largely stems from its acquisition strategy focused on high-end jewelry and watches. In contrast, LVMH and Kering pursue acquisitions across the entire industry and multiple categories.
It is reported that Richemont currently owns 19 brands, including Cartier and Van Cleef & Arpels, mainly concentrated in the jewelry and watch field. Its jewelry brands include the French jewelry brands Cartier and Van Cleef & Arpels, as well as the Italian high-end jewelry brand Giampiero Bodino.
Faced with powerful competitors, LVMH’s slowing-growth watches and jewelry business appears somewhat lackluster, making it normal for the group to urgently seek new partners. In most cases, acquisitions of brands by luxury groups are a win-win process.
For single brands like Tiffany, especially those with smaller sales scales, global expansion using their own resources is challenging. However, after being incorporated into a luxury group, they can gain advantages in raw material supply, channel expansion, finance, and back-office management, making it easier to monetize brand assets.
For large groups like LVMH, acquiring different brands enriches their category/product/image matrix. This mainly includes two aspects:

Although the synergistic effects vary across different brands and operational aspects. For example, in design and creativity, each brand needs to maintain image independence, so collaboration yields little benefit. In some cases, sharing designers has even had negative impacts.
Previously, when Tom Ford simultaneously served as the ready-to-wear designer for both Gucci and YSL in the later stages, controversy arose due to the overly similar styles of the two brands.

However, in some areas, brands can improve operational efficiency by sharing resources, such as in the procurement of non-core raw materials, warehousing and logistics, and back-office management.
Thus, Tiffany is a sufficiently tempting breakfast for LVMH, while LVMH might be just one of many suitors for Tiffany. Who knows, with a slight misstep, the current storyline could take a turn.