Startling parallels between Tiffany, Flipkart

The two got new owners at an identical deal size. But the similarity ends there...

What’s common between the 182-year-old New York jewellery major Tiffany and a little over-a-decade-old Bengaluru-headquartered Flipkart? Nothing at all, you would say, but think again. If Tiffany was acquired in the largest luxury deal of the world earlier this week, Flipkart got a new owner last year. And, what’s striking is the identical size of the two deals — 

$16 billion. 

Made famous by Audrey Hepburn-starrer Breakfast at Tiffany’s, perhaps more than by the diamond it sells to the rich and the famous, the chain with its flagship store in Fifth Avenue has a similarity with Flipkart’s origin too. The destination store for top-end jewellery had started out as a stationery outlet almost two centuries ago. Needless to say that Flipkart had begun its start-up journey from a two-bedroom Koramangala flat in Bengaluru as an online book store. 

If Tiffany & Co was founded by two 20-something entrepreneurs, Charles Lewis Tiffany and John B Young, it was the same at Flipkart — co-founded by Sachin Bansal and Binny Bansal. In both the cases the founders became friends as students. And if Flipkart entered into a trans-national deal with American retail giant Walmart, so did Tiffany to strike a cross-border transaction with French major LVMH or Louis Vuitton. 

Beyond that, Flipkart and Tiffany hardly converge. Tiffany, with more than 300 stores across the world and $4.2 billion in annual revenue, is treated as a heritage brand in America, looked up to by stars and politicians alike. Its iconic engagement rings and the blue boxes are a reference point in the deal documents with LVMH. Flipkart, though a poster-boy of Indian e-commerce, is just an online marketplace hosting thousands of vendors who in turn sell products —electronic goods to furniture, grocery to apparel — to pin codes spread across the country. Why then are Tiffany and Flipkart being acquired at the same price, barely one year apart from each other?

When Walmart bought a 77 per cent stake at $16 billion last year, valuing Flipkart at around $20 billion, its shareholders had reacted with anger. But one year later, in the recent earnings call, Walmart sounded pleased with Flipkart operations. “We’re excited about what’s happening at Flipkart and PhonePe,” said Doug McMillon, president and CEO of Walmart.
 

Walmart, having failed to start its multi-brand business in the country because of regulatory issues after waiting for long, possibly saw Flipkart as a gateway to the increasing buying power of the Indian middle class. With that, the Bentonville (Arkansas)-headquartered retailer also opened a front to compete with its American rival Amazon in a new battleground — India.

In that context, $16 billion was a price Walmart was ready to pay for the opportunity it was getting. With e-commerce still having a single-digit market share in the overall retail universe of the country, $16 billion was perhaps the world’s largest retailer’s bet on the future of shopping.

In the case of Tiffany, which caught the imagination of many generations, LVMH wants it as part of its 75- plus brands including Dior, Vuitton, Fendi, Celine, Dom Pérignon, Tag Heuer, Sephora, Moët & Chandon,  spanning categories such as fashion, watches, jewellery, wine, spirits, retail, beauty and hospitality. In fact, in 2017, the French fashion house had acquired Dior in a deal worth $13.1 billion. In that sense, Tiffany, not really in high spirits due to falling tourist demand in the current economic slowdown, may not immediately add to LVMH’s bottom line. In fact, the effort will be to revive and re-invent the Tiffany brand, which is not as popular with the millennials looking for deals and may be less expensive engagement rings. Reports show that lab-grown diamond, believed to be cheaper, is gaining in popularity with the younger lot. Tiffany hasn’t offered that option yet.

Bernard Arnault, founder, chairman and the largest shareholder of LVMH and one of the richest in the world, may attempt to change that to attract high-earning-but-not-rich-yet millennials to Tiffany. Depending on whether or not he’s able to revive the fortunes of a brand made memorable through Hollywood, the $16-billion deal may find a new meaning.

Till then, the deal value of a decade-old home-grown start-up will continue to surprise, when pegged against the price of a heritage brand that makes you hum ‘diamonds are a girl’s best friend’.