Tiffany in the balance

The coronavirus crisis has attached its tentacles to corporate takeovers.

The French luxury goods maker LVMH— owner of elite brands in the world of alcohol (Hennessy, Dom Perignon, Moet & Chandon), fashion goods (Louis Vuitton, Christian Dior, Givenchy). and jewellery (Tag Heuer, Bulgari, Hublot) has backed out of a deal to acquire the iconic American luxury goods company Tiffany & Co. It’s a big mess, with lawsuits flying hither and yon. And it all seems to have been precipitated by the coronavirus.

Tiffany’s was founded as a family business in 1837 by Charles Lewis Tiffany and was passed on to his son Louis Comfort Tiffany, under whose tutelage the company reached the apex of its reputation. In 1978, it was sold to Avon Products Inc., which held the investment uneasily until 1984, when control was sold to a private investment group. It became a public company in 1987.

Its reputation is still stellar: when you think of American luxury brands, the first name that probably comes to mind is Tiffany. Audrey Hepburn had Breakfast at Tiffany’s, and was one of two people ever to wear the legendary yellow Tiffany Diamond, which it acquired in 1879.

Back in November 2019 (remember that year of our innocence?), the two companies, LVMH and Tiffany, agreed to merge, and to complete the merger by June, and then November, 2020. In the meantime, the pandemic hit. Tiffany sales fell by one third. It seems that people were not focused on acquiring the latest piece of bling when they were huddled indoors with only mirrors to show it off to. At least LVMH had its alcohol division to fall back on. Mind you, there have been fewer occasions in recent months to celebrate with champagne; cognac must have been the meal ticket.

So LVMH got cold feet. It expressed doubts about the quality of Tiffany’s management. It produced a letter from the French government requesting a delay in the closing of the deal into 2021, ostensibly because of US trade actions against France. Tiffany sued LVMH, saying it was trying to renegotiate the deal by running out the clock and asked the court to force through the merger on the original terms. LVMH countersued, accusing Tiffany of mismanagement. The costs of litigation mount for both companies.

I have some sympathy for them: they operate in a difficult world. Protecting the core product’s cachet must be a much bigger game than protecting the integrity of the physical product. A highbrow reputation must be earned over time and can be lost overnight. And it must be pretty ruthless. Everyone likes to see the high and mighty take a hit; and no one is likely to spend money on LVMH or Tiffany goods just to demonstrate solidarity with them.

With luxury goods, you have to constantly monitor your inventory. If too much is in circulation, your product will lose its snob appeal and its premium price advantage. On the other hand, if you restrict it too tightly, you may miss the profit opportunity in selling a popular product. And nowadays, luxury goods makers are watched like hawks by environmental and consumer groups as to how they dispose of their excess stock.

Then there is the difficulty of whether to pitch yourself only to the upmarket, or whether to make a simultaneous pitch to the mid-market. Going mid-market appeals to more people, but the risk is that you will turn off your up-market core customer base. Tiffany moved firmly into the latter camp in 1990 by advertising an $850 ‘affordable’ engagement ring. Today, you can have a frisson of brand experience by buying a $55 bottle of Tiffany Eau de Parfum shower gel; or go the full monty and buy a $275,000 handmade indoor table greenhouse. Tiffany has continued its dual marketing approach by partnering in recent years with Lady Gaga and Kendall Jenner, but somehow they lack the classy but broad appeal of an Audrey Hepburn.

So what will become of Tiffany’s? Will the courts force the parties to marry despite the objections of LVMH, or will Tiffany’s have to go it alone? Can it go it alone without a partner, or will some white knight like Avon Products come to the rescue?

A cynic might say that Tiffany & Co. would make its biggest biggest profit by closing down its 326 stores worldwide, laying off all its staff, and selling the right to use the brand name to a retailer that is looking to present an upscale image. Imagine if Tiffany branded cutlery were available at your local Canadian Tire store. Your spirits would be reinvigorated and your household would be beautified. And Tiffany could invest its profits in quantum computing and live happily ever after.

It will never happen, will it? Surely even the coronavirus couldn’t push us that far.