Critics roasted LVMH for spending big on Tiffany. 4 years later, the bet doesn’t look so bad.

    Four years after it became LVMH’s biggest acquisition ever, Tiffany & Co. is bouncing back thanks to upgraded products and store renovations.

    Getty Images; Jenny Chang-Rodriguez/BI

    LVMH’s $15.8 billion Tiffany acquisition was its biggest ever — and was met with high expectations.Some investors are skeptical about the turnaround, but things are looking up at the jewelry brand.LVMH’s playbook of marketing, price hikes, and store re-dos are setting Tiffany up to shine again.

    On an April night last year, a veritable who’s who — Blake Lively! Gabrielle Union! Hailey Beiber! Katy Perry in concert with the Rockettes! — made their way to midtown Manhattan. Many wore outfits with pops of robin egg blue.

    They were there to celebrate the renovation, whispered to be the most expensive retail remodel ever, of the Tiffany and Co. Landmark store on New York’s 57th Street and Fifth Avenue.

    The store wasn’t the only thing under renovation. When luxury giant LVMH shelled out $15.8 billion for storied jewelry company Tiffany in 2021, it faced outsize expectations. It was the conglomerate’s biggest acquisition ever. It had also been a dramatic process, with LVMH trying to duck out of the deal and eventually buying Tiffany for hundreds of millions of dollars less.

    One of LVMH’s biggest challenges was reinvigorating the brand, which had taken a beating in the 2010s and become a mid-market version of its former self. Going from mass appeal to upmarket is tough in any industry, let alone in jewelry, where things move slowly. Plus, pushing an American brand further into the massive luxury market of China isn’t easy, no matter the macroeconomic conditions.

    That’s led some in the industry to whisper that things haven’t turned around with the speed LVMH boss Bernard Arnault would have wanted. It may just require a bit more patience.

    “The perception of investors is, ‘Tiffany’s not working,'” Erwan Rambourg, the global head of consumer and retail research at HSBC, told Business Insider. But “I think if you speak to people internally at LVMH, they’re super happy.”

    He continued: “To turn around a luxury brand is difficult, but to turn around a jewelry brand — it takes a lot more time than to turn around a handbag company or a ready-to-wear-heavy company.”

    Revenue-wise, things are already on the up. HSBC estimates Tiffany’s sales will be $5.96 billion this year — up 83% from 2020. And while its EBIT margin is still lagging behind that of jewelry competitor Cartier, per the bank’s estimates, it’s set to hit 20% next year. Profits in LVMH’s jewelry and watches division, which is predominantly made up of Bulgari and Tiffany, were up 7% last year. On the luxury resale site The RealReal, Tiffany is the most-searched jewelry brand of 2024 so far.

    LVMH, which does not break out revenue for individual brands, did not respond to requests for comment from Business Insider.

    It looks as if the LVMH playbook — spending big on marketing, raising prices, focusing on the in-store experience — hasn’t failed.

    “I’m very confident about Tiffany, but it takes time,” Arnault told Bloomberg last month. “You cannot do things instantly, you know?”

    How Tiffany lost its luster

    Since Tiffany first started buying diamonds in 1848, it has been a destination for the wealthiest and most prestigious Americans: It’s where Abraham Lincoln purchased earrings and a necklace for Mary Todd to wear to an inaugural ball and where Theodore Roosevelt bought his engraved hunting dagger.

    But by 2019, when LVMH first tried to buy Tiffany, the jeweler had decidedly lost its luster. Sales had fallen throughout the 2010s, and margins were low.

    The brand had lowered pricing on its more accessible lines, selling bracelets and the like for $200 or even less. The result was that Tiffany went from outfitting first ladies to sometimes being seen as a has-been mall brand preferred by, as the head of global luxury goods at Euromonitor Fflur Roberts put it, the very traditional stereotype of a middle-class white American.

    “You should be ashamed of selling products that are competing with Pandora if you aspire to be competing with Cartier,” HSBC’s Rambourg said, adding that, at the time of the acquisition, Tiffany was a sort of “sleeping beauty.”

    Tiffany’s Landmark store, which reopened in 2023, underwent extensive — and expensive — renovations.

    Cindy Ord/Getty Images

    To make matters worse, it had developed an overreliance on silver, which had fallen out of favor with European and Chinese buyers, and its stores had become dated and obsolete.

    “Asia is a humongous market for luxury, but lots of Chinese consumers were saying, ‘when I go to Tiffany, it’s like going to a hospital; it’s cold, it’s clinical,'” Rambourg said.

    LVMH deploys its nearly bulletproof playbook

    Paris-based LVMH is a brand of brands, and Bernard Arnault’s baguette and butter is buying companies and making them blow up.

    “It was really exciting to think that a brand that is traditionally very American and has a very strong American or North American heritage, that this big global luxury conglomerate is buying it with obviously a huge amount of industry knowledge and financial backing,” Euromonitor’s Roberts told BI.

    LVMH has done it in jewelry before, with the more upscale Bulgari, which it purchased in 2011 (its classic Serpenti collection starts at $1,600). By 2019, the brand’s revenue doubled, and profit increased fivefold.

    “Bulgari became one of the top preferred gifting brands for Chinese high net worth individuals — that was a really good achievement,” Jelena Sokolova, a senior equity analyst for Morningstar, told BI.

    Meanwhile at Tiffany, LVMH is using a team of Cartier veterans. (“Arnault has been not so secretly obsessed with Cartier over decades,” Rambourg said.)

    Step one is marketing: Make people talk about Tiffany again — and use big names to do that. Even before the star-studded opening of the Fifth Avenue store, the brand brought in the big guns, Beyoncé and Jay-Z, in a multifaceted campaign incorporating a Basquiat.

    Another campaign incorporated the slogan “Not Your Mother’s Tiffany,” a not-so-subtle nod to the fact that the brand needed a makeover, and a partnership with Nike brought it new relevance.

    Next, there had to be a product rehaul. To sell itself as upscale, many products going for less than $300 were cut or their prices raised. Gold — popular in China — was incorporated more into collections, and it purchased a 71.26-carat yellow diamond to show its dedication to fine jewels.

    There was also a renewed focus on branded lines, like the Lock and T collections, which are the “equivalent of putting a big fat logo on a bag,” Rambourg said. The hope was that Tiffany products would become status symbols, the equivalent of a Cartier Love bracelet or Van Cleef Alhambra necklace, which is particularly desired in China.

    “Their goal was to obviously expand the reach, so to make it more global, and to increase, Asia Pacific was No. 1,” Roberts said.

    Tiffany has leaned into icons in design, like its T collection, left, and Lock collection, right, in an effort to rebrand and in hopes of launching the next Cartier Love bracelet.

    Jeremy Moeller/Getty Images; Christian Vierig/Getty Images

    The final and ongoing step involves renovating those dated retail locations. Not all will have the grandeur of the Landmark store, but there will be warmth, color, and an overall refresh.

    The before-and-after store renovation, especially given “the obsolescence of the previous version and how colorful, welcoming, feminine and commercially efficient the new concept is,” will be a big deal, Rambourg said.

    Growing pains have tarnished Tiffany

    But reviving a luxury brand isn’t easy, and investors have been murmuring that Tiffany’s turnaround hasn’t met expectations. It’s still Van Cleef Alhambra bracelets on the arms of influencers and celebrities — not Tiffany Ts. (Although Taylor Swift was recently spotted with a ring from the T line, which may change that.)

    “Tiffany has been underperforming other jewelry brands in the last few quarters,” Chiara Battistini, JPMorgan’s head of European luxury and sporting goods research, told BI.

    Part of it is the industry’s nature: Fine jewelry is, by definition, not an everyday purchase.

    Someone may buy a new pair of shoes every few months, allowing them to experiment with new brands and become a loyal shopper in no time at all. Jewelry is a rare splurge. When people shell out a paycheck or two (or more), they want it to be on something they know will have lasting appeal and are thus less likely to experiment. That means it takes longer for new trends — the Tiffany T, perhaps — to catch on and gain the status of a Cartier Love bracelet.

    “At the very, very high end, the chances are you’ll be a bit more careful because it’s a huge investment, and you want to make sure that that fashion or trend will last,” Roberts said.

    China, specifically, has proven challenging. Nearly 50% of Tiffany’s sales are still in the US, one of the most challenging markets for luxury at the moment. Macroeconomically, China has not maintained the post-pandemic growth many in the industry were hoping for.

    There’s also the sort of je ne sais quoi that can’t simply be fixed with money. Hiring influencers and raising prices can only do so much to remove the tarnish of “uncool” from Tiffany, especially with younger consumers.

    It “still needs to add to the fine jewelry offer with more contemporary, less intricate, and highly recognizable designs,” Battistini said.

    And regardless of sales growth, all of the brand work — the marketing, the store renovations — is expensive and translates to a temporary hit to profitability.

    Tiffany still has time to shine

    Since 1961, when Audrey Hepburn immortalized it in “Breakfast at Tiffany’s,” the brand’s Fifth Avenue flagship has held a romantic allure — it’s also one of the brightest spots in LVMH’s Tiffany takeover.

    The Landmark, as it’s called, underwent a massive renovation before reopening in 2023, including adding a café.

    “Tiffany has been hugely successful with the Blue Box Cafe — it’s a tourist destination in itself,” Roberts said. “When you go into a Tiffany store, you’re going to expect to have that amazing experience in customer service.”

    Hailey Bieber, sporting robin egg blue nails, at the Landmark opening.

    Taylor Hill/Getty Images

    And if LVMH gets its way, the other pieces of its plan for Tiffany will similarly fall into place over time.

    “It is a very long journey, especially in jewelry,” Sokolova said. ” You shouldn’t expect that to happen sort of overnight.”

    The store renovations, which analysts agree are a key component of the strategy, are certainly happening gradually. There are about 300 Tiffany locations, and only 30% of them will be renovated by the end of this year, Rambourg said. It will take another year before half of them are up to the company’s standard.

    But once those renovations and the marketing blitz surrounding them are complete, margins will have a chance to catch up.

    “This year, I believe Tiffany will underperform its jewelry peers because they don’t have the appropriate retail setup. Conversely, whatever the macro next year, I’m quite convinced they will outperform strongly,” Rambourg said.

    In another bright spot, branded jewelry — just the thing Tiffany has leaned into — is set to continue to grow, including in China. Branded jewelry was only 15% of the market in 2019 and is expected to reach 25% to 30% of the market next year, according to a 2021 McKinsey report, with growth driven predominantly by Asia.

    “It’s a growth industry, not just a market share gain industry,” Sokolova said.”There’s still an upside from switching from nonbranded to branded.”

    It’s already having a trickle-down effect: On The RealReal, demand for the brand is up 14% from last year.

    And quite simply, there is the fact that LVMH very rarely fails and is taking its signature approach full speed ahead. “Whether it’s handbags, whether it’s Champagne, whether it’s cognac” — or whether it’s jewelry, LVMH’s attitude, Rambourg said, is “Let’s do what we do in every single other sector. Let’s dominate.”

    Read the original article on Business Insider


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