Key Takeaways#
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- Jewelry, the key beneficiary of the “future is female” theme, remains a fragmented growth market. Tiffany is one of a handful of brands likely to consolidate market share.
- Lower Chinese exposure than peers and limited product diversification are respectively short-term and long-term sizable opportunities.
- Now that Tiffany has become part of LVMH, we can expect some financial and human resources to be unleashed, starting with Louis Vuitton execs taking on the Chairman and CEO role and a promising Arnault heir getting involved as well.
As explained in a previous column, a combination of “womenomics” and societal change will bring about a new wave of spending from female consumers in the luxury sector, and jewelry is bound to be one of the biggest beneficiaries. Leaving the more affordable brands (Swarovski, Pandora) aside, luxury names that are big and relevant for consumers around the world are few and far between. They include Cartier and Van Cleef & Arpels (both part of the Richemont group led by South African chairman Johann Rupert), as well as Bulgari and Tiffany, which are now both part of the luxury empire built by French entrepreneur Bernard Arnault, LVMH.
The prestigious French brand Cartier, known as “the jeweler of kings and the king of jewelers,” is preferred in China. Van Cleef & Arpels is known for its romantic femininity and pieces shaped like animals or floral designs. Bulgari stands out as a colorful, exuberant Roman brand. Lastly, Tiffany is an iconic New York jeweler known for its diamond and sterling silver pieces and topping consumer brand preference surveys in the US. All four are likely to thrive over the next decade, but there are reasons to believe Tiffany will gain the biggest market share.
Long before the confirmation of the LVMH takeover, Tiffany was lagging behind its rival Cartier on two essential attributes: China exposure and product category diversification. In regards to China, the Tiffany team started to narrow the gap somewhat with targeted retail investments, better clients, and — importantly — the development of so-called “iconic products.” These are the equivalent of “signature products” in the handbag world, a.k.a instantly recognizable designs that consumers buy, so they can be recognized.
Companies can’t put a big logo on their rings, but recognizable designs might do the trick. Examples of products that are hugely successful in China include the Love or Just Un Clou collections at Cartier, the BZero1 or Serpenti at Bulgari, and the Alhambra at Van Cleef. Tiffany's latest T1 range is one as well, but the brand will be able to go a lot further in the future with bridal options being less of a focus, as getting married these days is less popular than self-purchasing. Also, Tiffany silver jewelry continues to be a US- and Japan-specific look that isn't relevant to Chinese consumers.
On the margin front, another reason Tiffany is significantly less profitable than Cartier is that the brand is known only for jewelry. Meanwhile, you may enter a Cartier store for a bracelet but end up purchasing a watch, fragrance, handbag, or pen. Tiffany has many product categories outside of jewelry, but few consumers know that. Credibility outside of your core takes time, and it certainly should not be a priority for Tiffany in the short term. But by the late 2020s, one can imagine Tiffany resonating in many categories. Did you ever think Louis Vuitton could have a big, credible business in jewelry, ready-to-wear, or fragrances? Doubters must acknowledge that what started as a travel trunk/handbag company is now incredibly relevant in many categories. There is no reason to believe Tiffany will solely be known as a jeweler forever.
Speaking of Louis Vuitton, remember a few years ago when sales were around 7 billion euros, and the press was talking about ubiquity issues? The brand is now twice that size, and I haven’t heard the u-word in five years. "Scale" is not an issue either. If anything, a larger scale is a key asset today. With its hand in production, retail experience, merchandising, media, clienteling, and more, I don’t see any reason LVMH, as the owners of Louis Vuitton and now of Tiffany, couldn’t double the latter’s sales. They managed to do it for Bulgari after integrating that brand in 2011.
Yet Tiffany has even more growth potential. While the LVMH-Tiffany deal is the biggest in the sector’s history, you could argue that the acquisition probably won’t move the needle much for the parent company since Tiffany’s market capitalization (as of this column) stands at just one-twentieth of LVMH’s. On the other side, there is a lot LVMH can do in terms of human and financial capital that will further accelerate the reawakening of the Tiffany brand.
The new team that Tiffany announced this week includes the appointment of an LVMH rising star, Anthony Ledru, as the brand’s CEO, who has huge US-market, jewelry, and retail credibility. As a Frenchman, he can help translate the Tiffany specifics to the Group’s HQ in Paris. Meanwhile, Bernard Arnault’s most trusted partner and the current Louis Vuitton CEO, Michael Burke, was named the Tiffany chairman, and 28-year-old family heir, Alexandre Arnault, who brought digital excellence, collaborations, and retail excellence to the high-end luggage brand RIMOWA, has been chosen to run product and marketing at Tiffany. With such a lineup, Tiffany should be viewed as having tremendous potential.
When LVMH first announced the takeover, one of its comments was that Tiffany was somewhat constrained as a listed company because it had to think quarter by quarter. The irony of that comment is that LVMH is also a listed company — but it is one that is family-controlled, has deep pockets, and now owns a vision for the next generation. Tiffany was poised for greatness, and it’s bound to come to fruition much faster now, or as Isaac Newton would have said: “If I have seen further than others, it is by standing on the shoulder of giants.”
Erwan Rambourg has been a top-ranked analyst covering the luxury and sporting goods sectors. After eight years as a Marketing Manager in the luxury industry, notably for LVMH and Richemont, he is now a Managing Director and Global Head of Consumer & Retail equity research. He is also the author of Future Luxe: What’s Ahead for the Business of Luxury (2020) and The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun (2014).