(Bloomberg) -- LVMH’s $16 billion purchase of Tiffany & Co. transformed the luxury goods powerhouse into one of the biggest jewelry sellers in the world. Three years later, the most expensive luxury acquisition on record doesn't appear to be going according to plan.
The jewelry industry is slowing. Sales at Tiffany’s stores are missing the company’s ambitious goals. And the head of LVMH, tycoon Bernard Arnault, is counseling patience with the jeweler’s turnaround. “You cannot do things instantly,” he said in a Bloomberg Businessweek interview published in June.
While revenue at Tiffany has increased under LVMH, some recently departed employees said the jeweler set sales targets they say were unachievable. That meant staff were receiving lower commissions than in the past, prompting some to defect to competitors and take some of their loyal clients with them, according to people familiar with the matter who were not authorized to speak publicly.
The exits have added to a sense of upheaval as the iconic American brand adjusts to LVMH Moët Hennessy Louis Vuitton SE’s ownership, some of these people said.
The challenges at Tiffany are testing Arnault’s well-honed playbook. He’s built his career buying beloved brands, elevating their cachet and boosting sales. Annual sales have already increased by around $1.5 billion since Arnault bought Tiffany in 2021, and he has plans for more. “I’m very confident about Tiffany, but it takes time,” he said in the Businessweek interview.
Arnault has tasked his son, Alexandre, to help oversee the jeweler’s expansion alongside Chief Executive Anthony Ledru. It’s a test. The patriarch has placed all five of his children in top roles across his luxury empire to see which one will ultimately reign. “Let’s see if one of them has the capacity to take over,” Arnault said in the interview.
The sales setbacks and staff exits put increasing pressure on Alexandre Arnault to pick up the pace on Tiffany’s turnaround. The 32-year-old made a splash early on with marketing campaigns featuring Beyonce, Jay-Z and K-pop megastar Jimin, which have helped modernize and globalize the brand. The company has also rolled out big price hikes.
Manhattan Flagship
Tiffany's Manhattan megastore makes up around 10% of the company’s annual sales, so missed targets there could drag on the expected rate of growth at Tiffany. That would hamper the jeweler’s contribution to sales at parent company LVMH, which reports earnings on July 23.
A Tiffany spokesperson said in a statement that sales at the New York flagship have increased by four times since LVMH’s acquisition. From April 2023, when it opened, through May 2024, the store has been the “highest-performing” single-brand store at LVMH, the spokesperson added.
The luxury conglomerate doesn’t break out revenue for Tiffany or any of its 74 other brands. But Stifel Financial analyst Rogerio Fujimori estimates that Tiffany’s revenue will fall around 3% in the second quarter compared to a year earlier, roughly in line with the estimated drop in the prior one.
By contrast, rival Richemont, which owns Cartier and Van Cleef & Arpels and caters to customers that tend to be wealthier than Tiffany shoppers, last week reported a 4% increase in sales at its jewelry division.
Tiffany is also losing market share to Cartier and other rivals: It lost about 0.7 percentage points of its market share in the global branded luxury jewelry sector in 2023 versus the prior year, according to the most recent data from research firm Euromonitor International. Cartier increased its share by four percentage points during the same period, the data show.
“When the US was booming in 2021 and 2022, Tiffany was of course flying,” Stifel's Fujimori said. “But when the market gets more difficult, the opportunity areas that LVMH is working on become apparent.”
The brand is strengthening its jewelry collections, upgrading its stores and investing more in marketing, Fujimori said. He expects Tiffany to grow 1% to 2% this year, about half as fast as Richemont’s jewelry division.
Missed Targets
The challenges facing the Arnaults are on display at the jeweler’s flagship store on Fifth Avenue. Made famous by the 1961 movie Breakfast at Tiffany’s, LVMH renamed the store “The Landmark” in April 2023 after a roughly $350 million revamp.
The timing wasn’t ideal. Tiffany’s shoppers had seized on the post-pandemic spending boom, but now inflation was taking its toll on sales. Staff were consistently missing their monthly sales goals during the summer and into the fall. Tiffany doubled down on its ambitions for the brand, though, asking staff try to meet hiked sales targets.
As the Christmas lights went up on Fifth Avenue ahead of the holiday season, Tiffany executives apparently thought they could defy the slowdown. Their goal for December 2023 was more than $60 million in sales, up from around $30 million the previous year, according to the people familiar with the matter, who asked not to be named discussing internal company figures.
Many on staff were shocked. They knew the revamped flagship was a selling point because it had generated a lot of media coverage and was much bigger than the temporary store where they’d been working. But the goal was about double what they’d sold a year earlier, when jewelry sales were stronger. Before LVMH bought Tiffany, sales targets usually increased between 5% to 10% each year, some of the people familiar with the matter said. A 100% increase seemed untenable, they said.
Ultimately, staff sold $50 million worth of merchandise. It was the most the flagship had sold in years, helping propel Tiffany to what the spokesperson said was a record-breaking year of sales at the Landmark. But it still wasn’t enough to meet the increased targets.
Tiffany’s flagship has continued to miss targets in 2024, falling short of the roughly $25 million monthly goals in the first quarter of the year, some of the people said. Other Tiffany stores across the country have also missed their sales goals, discouraging employees and denting morale.
Turnover
Frustrated after more than a year of falling short of targets and missing out on higher commissions, some staff are leaving for competitors such as Cartier and Harry Winston.
Some employees who worked at the flagship said that they were told by managers they were among the roughly three-fourths of salespeople who exited within the past year, according to some of the people familiar with the matter.
While retail stores often have high staff turnover, due to long hours in relatively low-paying jobs, Tiffany’s figure is higher than the average for luxury. It’s usually around 50%, Milton Pedraza, head of the Luxury Institute, a consulting firm, said.
The Tiffany spokesperson said its sales targets reflect the “growth of the business, increase in retail space and larger assortment of products.”
To address the exits at the flagship, LVMH shuffled in employees from its other brands and stepped up hiring of some workers who don’t have experience selling jewelry, some of the people familiar with the matter said. That frustrated some Tiffany employees since expertise in gems and jewelry had long been valued at the company.
The Tiffany spokesperson said employee turnover and staff moving to competitors “happens on both sides and is not new.” The company hires employees from all areas of luxury retail, the spokesperson added, given the size of the Landmark and the different products it sells. The flagship has more than 350 people on staff, the spokesperson said.
Culture of Elevation
To attract more wealthy customers, Tiffany is hosting more events.
Under the previous management, Tiffany invited 100 or so wealthy guests once or twice a year to a destination to spend three or four days in an exclusive setting. Those who attended were expected to spend a minimum of $100,000 purchasing jewelry. Last year, Tiffany hosted more than half a dozen of those events and stretched them out over several weeks to allow more people to attend.
The company is also trying to encourage staff at the flagship and other stores to sell more high-end jewelry, which are pieces priced from $75,000 and up into the millions, and hosted a training this spring called “The Culture of Elevation,” to teach employees more about Tiffany’s history and its iconic collections, such as the Lock and the Tiffany T.
The Tiffany spokesperson said its top 20 client advisors earned as much as 75% more than last year and that employees have benefited from perks, including an additional week's vacation time and higher commission on its priciest items.
The company has said its strategies are attracting more high-end customers and are allowing Tiffany to sell more high-end jewelry.
Customer Mustafa Hashmi says he’s drawn to the brand’s American luxury heritage. The 32-year-old private investor has bought pieces including an engagement ring for his wife at Tiffany and four watches in recent years. “I’m looking at these pieces as heirlooms to pass down to my family.”
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