Can LVMH Be Bigger? Ring The Alarm Bell For Our Competitors.

Tiffany & Co, a famous American jeweler, has refused to be bought for many years, but its cooperation with LVMH is undoubtedly a good deal. The $16 billion acquisition announced last week is the largest in the luxury industry to date. After that, Tiffany became a member of the largest luxury group in France.
The deal will further enhance LVMH's leading position in the luxury industry, expand its foothold in the United States, and greatly increase the proportion of jewellery and clocks in its business. This will change the industry structure and make it equal to the industry's "hard luxury" boss and Swiss Richemont.
Although some people question the qualification and growth potential of Tiffany as a luxury brand, it is still one of the few large jewelry companies in the world. The deal strengthens LVMH's huge and diversified portfolio, which many investors think is the key to winning.
Earlier this month, the market value of LVMH on the Paris stock exchange exceeded 200 billion euros for the first time. At present, it is 3 times larger than its main competitor Kering, 5 times larger than Richemont.
In the luxury industry, the bigger the bigger the stronger. The size of the portfolio does make LVMH an edge in distribution and publicity, and can impact on other key roles of multi brand retailers, shopping malls, real estate developers, magazines, public figures and fashion industry. LVMH has more advantages in attracting and retaining top talent, which can provide better pay, more colorful career opportunities and more relaxed funds.
"This transaction reinforces the fact that the scale is very important in this industry," Erwan Rambourg, global joint chairman of the HSBC consumer and retail research center, said in an e-mail. HSBC expressed concern about the emergence of the "jewellery hegemony", comparing LVMH to "Nike in the luxury sector".
HSBC said earlier this month, "executives in the luxury sector may feel that this analogy is somewhat flattering, but the fact is that LVMH's scale and speed of development are no longer available in the luxury sector."
As BoF Fashion Business Review and McKinsey Co's 2020 fashion report show, fashion is evolving into a winner take all industry. The report found that the top 20 companies, including the "super winners" Nike and Inditex, accounted for more than the sum of the rest of the industry.
Of course, economies of scale are by no means unique to the fashion industry. Looking at all walks of life, from cars to technology, the greater the scale, the easier it is to stay ahead. "Integration is very natural in emerging industries such as modern luxury goods," said Luca Solca, an analyst at Bernstein.
Whether the Tiffany deal will open up a new round of M & A in the industry is still to be observed, but this has sounded the alarm for LVMH's opponents. Especially for Richemont with Cartier and Van Cleef & Arpels two world famous jewelry brands, this is really bad news.
Of course, LVMH's acquisition of Tiffany is not without risk.
Acquisition is not only expensive and time-consuming, but also difficult to integrate. Tiffany will change the position of LVMH in the field of clocks and jewellery, so that the contribution rate of the Department to the overall operating profit has jumped from 7% last year to 13%. But it also means that this luxury magnate will have to try to help this famous but declining jewelry brand to turn the corner. In the first half of 2019, Tiffany's global net sales fell by 3 percentage points to $2 billion 100 million. The company is facing a weak market at home and abroad. It is likely that a lot of investment will be needed to revitalize the brand and business.
LVMH has made brilliant achievements in revitalizing traditional brands. After buying Bulgari in 2011 for 5 billion 200 million US dollars, the company started from combing the product line and upgraded it to a jewelry brand that focuses on high-end market. Over the past 8 years, Bulgari's market share has continued to grow. HSBC's data show that its sales doubled and its operating profit increased 5 times.
Bernstein's Solca pointed out in the report, "if LVMH can repeat the success of Bulgari in this Tiffany merger case, it will further increase the pressure of Richemont. This will also increase the competition threat from big brands from fashion design and fur products to jewelry industry, such as Chanel, Herm s, Louis Vuitton and Gucci.
Perhaps the most significant change in LVMH's acquisition is that it has affected a broader market and forced other brands to consider competitiveness through huge mergers and acquisitions. There are very few targets to scale up to change the situation, and there is almost no possibility of such obvious moves as cooperation between Richemont and Kering, or acquisition of Chanel and Hermes.
"Every competitor now finds it difficult to compete with LVMH, but the pressure on Richemont is obviously the biggest," said Rambourg of HSBC.
LVMH also needs a period of time to digest the huge merger last week, so it is unlikely that the merger will take place in the near future. But in this industry of the largest size, the world's largest luxury group is likely to grow.