October 29, 2020

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Tiffany & Co. is in big trouble without LVMH’s $16 billion takeover — here’s the biggest reason why

3 min read

Tiffany & Co. (TIF) is about to embark back down the path of being a stand-alone public company following luxury goods giant LVMH yanking its $16 billion takeover offer.

And for Tiffany (and what’s left of their investor base), that road is likely to really suck for one primary reason — awful tourism trends globally at the hands of the COVID-19 pandemic. Unlike most in retail, Tiffany has long been over-reliant on global tourism flows to its castle-like stores in densely populated cities. The company’s iconic New York City flagship store on Fifth Avenue alone (which is being renovated and targeted for a late 2021 reopening) has accounted for 10% of worldwide sales in 2019, 2018, and 2017, according to Tiffany’s latest annual report.

Those epic flagship stores in places such as Japan and Europe are now generally filled with tumbleweeds — as opposed to throngs of international buyers with cash in hand ready to buy a $5,000 Tiffany necklace — as tourism has ground to a halt around the world. When it returns to pre-pandemic levels is very unknown. Heck, when tourism returns to 50% of pre-pandemic levels is very unknown.

The latest reads on retail spending at flagship stores and tourism more broadly are far from encouraging.

A Tiffany & Co store is seen on 5th Ave in New York, New York, U.S., March 19, 2019. REUTERS/Carlo Allegri

Macy’s (M) is similar to Tiffany in that it operates large stores — or flagships — in urban areas. The best example: The enormous Macy’s in New York City’s Herald Square. Before the pandemic, Macy’s Herald Square was a microcosm of the world. Now, it’s a mostly empty massive store focusing on curbside pickup.

And when Macy’s flagship stores historically struggle, it struggles to meet investor expectations. Same deal for Tiffany & Co.

“In some urban markets, including New York City, San Francisco, and Chicago, we continue to see these declines in traffic driven by the slow return of workers to the city center and the erosion in both international and domestic tourism. Thus, as expected, international tourism sales were down significantly in the quarter, and the decline impacted our Macy’s Inc. crop by about 210 basis points,” warned Macy’s CFO Felicia Williams on a conference call with analysts last month.

Meanwhile, the most recent UNWTO (United Nations World Tourism Organization) World Tourism Barometer showed a 98% year-over-year crash in international tourist numbers in May. The number of tourist arrivals between January and May plunged 56% from the prior year.

The UNTWO estimates there was a 300 million drop in the number of tourists from January through May, leading to a staggering $320 billion in lost international tourism receipts.

What all of this means for Tiffany you ask? An unfortunate stretch of terrible earnings release days in the months ahead and possibly a sharply lower share price. LVMH is a master of deals and surely knew this was brewing, so it’s hard to argue with them playing hardball on their offer price for Tiffany. The company said Wednesday it would no longer pursue the acquisition of Tiffany in light of “recent developments”, including the potential of new U.S. tariffs on French goods.

LVMH should sit tight. A year from now Tiffany’s battle through the pandemic and weak flagship store traffic is likely to leave its stock price much cheaper than current levels.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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2020-09-09 12:31:21

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