No doubt Bernard Arnault is surrounded by acolytes. The LVMH tycoon is, after all, the most powerful man in that most obsequious of businesses — fashion — and a billionaire to boot.
After today’s Tiffany takeover, he may wish he’d had someone whispering in his ear that he’s mortal.
For now, all you hear from the industry is after-party applause and clinking of champagne flutes. The fashionistas trill how the mighty Arnault will surely repeat the trick he pulled off with the 2011 takeover of Bulgari, driving a tiring brand relentlessly upmarket, improving both turnover and profit margins.
The reality is far less certain.
Tiffany’s is a far cry from Bulgari. For starters, it is far bigger than anything LVMH has ever bought. The $16.2 billion price tax dwarfs the €4.3 billion Bulgari deal.
Integration of such a huge merger carries massive risk.
The purported plan to boost Tiffany’s margins by moving it exclusively upmarket is no easy task. Currently, a fifth of Tiffany’s sales are in lower-end silver jewellery. That’s a lot of cashflow to sacrifice. Meanwhile, developing high-end product lines to justify a new status as a super high-end brand will take years, and hundreds of millions of euros.
Tiffany is also a far better-run business than Bulgari was. Disappointing earnings lately have been largely due to weak China demand and other macro-economy factors out of Tiffany’s control.
They’ll be out of Arnault’s control, too. It may not be long before the deafening applause at today’s deal begins to falter.
