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LVMH cancels deal with Tiffany, this analyst explains why the luxury jewelry brand will survive

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Sucharita Kodali, Forrester Research Retail analyst, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss LVMH cancelling its $16.2 billion dollar takeover deal with Tiffany, what Black Friday may look like and the future of J.C. Penney.

Video Transcript

BRIAN SOZZI: The hits keep coming in retail before the holiday season. Mall owners Simon Property Group and Brookfield Property Partners are gearing up to acquire a bankrupt JC Penney. The department store chain is being valued at $1.7 billion.

Let's bring on our friend of the show, Sucharita Kodali. She's a retail analyst at Forrester Research. Sucharita, so JC Penney will be left with about 650 stores. Does this deal make any sense for the mall owners? Why can't-- why don't they just cut bait and move on?

SUCHARITA KODALI: Well, I think that these guys need somebody to continue to be in those spaces because there are a lot of co-tenancy clauses, and the rest of the mall just needs to have some sort of occupancy. To have an empty box would be a big disaster because then they would need to figure out either how to get a new tenant, and a lot of these are B properties, or they would need to just sit on empty space. And that would just be the death of those malls.

So it's really about just giving some degree of life and just preserving what is there of JC Penney so at least it's not an empty door.

BRIAN SOZZI: Preserving-- so essentially, they're keeping afloat a dead carcass.

SUCHARITA KODALI: Does this mean that JC Penney will be in business within the next three years?

SUCHARITA KODALI: Well, it doesn't-- it takes a long time to kill a retailer, and that's incredibly important to keep in mind. And so long as they're able to pay their bills, which if they have an owner, they will-- they-- certainly one of their biggest expenses being their real estate will certainly get concessions and will likely be in a much better position. That, essentially, leaves them with their labor costs and their inventory costs. And certainly, there are ways that they can work to get either consigned inventory and reduce some of the burden there. And as it is, a lot of these department stores are cutting back on labor and really having minimum-- just skeleton staffs to operate.

So I think that it can absolutely be around. It may not be a great customer experience, but at least it's alive and open. And they can figure out, you know, kind of what the plan B over five to 10 years could be for that space.

ALEXIS CHRISTOFOROUS: Sucharita, I want to get your take on the drama playing out with Tiffany and Company. So the owner of Louis Vuitton pulled out of its $16.2 billion buyout of Tiffany, saying they've mishandled the pandemic, that their results have been very poor, the company's been mismanaged. Tiffany sued LVMH. LVMH counter-sued Tiffany. It's gotten really messy here. But at the end of the day, what is the fate of Tiffany and Company without this buyout? Does this iconic store as we know it go away?

SUCHARITA KODALI: Oh, I can't imagine that it will go away anytime soon. I mean, this is a brand that is nearly 200 years old. This is a brand that has survived wars and all sorts of economic downturns. If the pandemic ultimately has its say, it will be because of the mismanagement of the management team, not because of anything related to the strength of the Tiffany brand.

These luxury brands are extremely resilient, and they have extremely loyal customer bases. And the most important thing is that they are able to manage through. They do seem to have the capability of doing that. Ideally, it would be nice to be under the aegis of a large luxury conglomerate like LVMH. And it could have theoretically helped LVMH too because it would have got them into hard luxury. But on the other hand, they do have the ability to it to-- you know, there are different directions that the company could take in the future. Maybe it becomes an acquirer and-- you know, of different brands, too.

ALEXIS CHRISTOFOROUS: OK, so you're saying maybe Tiffany may do-- may be doing some buying here? Because I was going to ask you who else might come to the table to buy Tiffany at this point. And might there be an advantage because Tiffany may be a little desperate and could go for a better price?

SUCHARITA KODALI: Well, I mean, the other obvious buyers would be a group like Kering. It could be one of the players in the luxury watch space that could also very easily come to the table, although there are few that have the resources of LVMH. And that's really, I think, the big question. So could it be a consortium of-- you know, again, like, maybe it's a property owner with another luxury brand and perhaps with a private equity firm all coming together for this.

So I don't see any bad outcome for Tiffany. It's too powerful of a brand. In scenarios like this, it's not uncommon to have a PE firm coming in and, you know, kind of offering something that could be could be attractive for both sides. So we'll wait to see what happens.

BRIAN SOZZI: Sucharita, something else caught our attention this morning, Home Depot essentially canceling their Black Friday sales. What are you hearing from major retailers? Is this finally the season that Black Friday is over? It's no longer going to be a thing. Maybe it starts in October. Because the bottom line is, who is going to show up in stores amidst a pandemic on the day after Thanksgiving?

SUCHARITA KODALI: Right, right. And that is really the big challenge with any kind of Black Friday offering is, how are you going to manage crowds? And the companies that have all said that they're either going to cut back or do something very different this year are those companies that are coming from positions of strength.

It's Walmart. It's Target. It's Home Depot. Their sales have been doing fine through the course of the pandemic, so they're in the luxurious position of being able to say that they're going to do whatever they want to do come Thanksgiving. And if that means, you know, just even closing the store entirely to manage crowd control, they have the power to do that.

The bigger challenge is for all of those mall merchants and other specialty retailers and sectors that are not doing as well. And they are going to have to be forced to either cut back on their hours or to do something drastic. But to completely shut their stores down entirely is just not fathomable for many of these companies.

They are highly-- like, especially the department store sector, heavily dependent on Q4, heavily dependent on days like Black Friday and the weekend after. And they are going to have to do things like scheduling visits, reducing the number of people, and just spreading out as much as they can in the weeks before and also extending sales so that they can spread out traffic in the weeks after.

ALEXIS CHRISTOFOROUS: Sucharita, what does this mean for consumers, you know, if there's not a traditional Black Friday? Does it actually work to our advantage because these retailers are going to be forced to offer these discounts for a longer period of time?

SUCHARITA KODALI: Well, the consumer no doubt is going to benefit anyway because these stores are doing so terribly that they will likely offer all sorts of incentives for consumers to shop. So I do expect that the consumer is going to absolutely benefit. And the consumer is going to certainly be able to get a lot of these offers from the comfort of their home because that's really the push is it is the push toward buying online and getting items shipped to you or buying online and coming to the curb and picking it up and having the items dropped in your car.

The latter is a process that I think is still a work in progress for a lot of retailers. And you know, if you do get curbside pickup, you may be waiting a long time in the parking lot. So I'd encourage people to certainly shop online and get items delivered to them, and I think that's what retailers are going to push for as well.

BRIAN SOZZI: Alexis, I'm expecting a big gift from you. I'll gladly take the 75% off sweater from lululemon. I'm all for it.

ALEXIS CHRISTOFOROUS: Oh, nice move--

SUCHARITA KODALI: It may not be lulu.

BRIAN SOZZI: All right, we'll leave it there. Sucharita Kodali, retail analyst at Forrester Research, always good to speak with you.

SUCHARITA KODALI: Great. Thanks for having me.