Innovation vs. Administration: Only the Strongest Companies in the Market Survive – Conservative Article
The effects of COVID-19 in the commercial market have created a sea of top corporations falling into administration. Companies such as Arcadia Group and Debenhams fall under the long list of those struggling to stay afloat. Whilst in many ways this is devastating to witness, I would argue that there is a clear light at the end of the tunnel; acquisitions such as the LVMH and Tiffany merger.
LVMH, a French multinational corporation and conglomerate specialising in luxury goods, have recently acquired Tiffany, an American luxury jewellery and speciality retailer. LVMH owns a range of luxury subsidiaries, varying from wines and spirits, to fashion and leather goods, even leaning into the yacht industry.
The $15.8 billion acquisition presents an opportunity of synergy amongst the luxury watch and jewellery sector. After months of litigation and disputes, the luxury sector is seeing its biggest-deal yet. This is incredibly important. In a time of deep trouble in the commercial market, a deal like this presents the need for innovation. The pressures that we are facing are weeding out the ineffectual, leaving the strongest intact.
Acquisitions such as the LVMH-Tiffany merger display the functionality of the free market. Ultimately, the companies that thrive are the ones that innovate. When the market is under immense pressure, as it is now, the process of the free market only speeds up. The strong companies flourish and the weak die out. We have evidence of this from the 2008 recession. We saw the birth of the exceptionally successful companies that we have today, such as Uber, Airbnb and Whatsapp.
In acquiring Tiffany, LVMH has been presented with the opportunity to modernise the brand to suit the next generation. They have already expressed a clear intention to do so in the reorganisation of their leadership team.
Alexandre Arnault, Tiffany’s new chief executive post-merger, has built his career off of modernising old brands to fit the current climate of the luxury market. Arnault was at the forefront of implementing collaborations between the brand Rimowa and younger brands such as Supreme. He led this area of the market in a new direction entirely. The energy that Arnault has put into reinventing brands for current and future consumers is what brands such as Tiffany need in order to thrive post-Covid.
However, the new leadership of Tiffany since the merger has been in question. There has been no addition of a chief diversity officer to recruit more diverse leadership into the group. This certainly is an area that would benefit any brand greatly in further innovating in the current climate.
A 2015 study showed that “public companies with more diverse leadership were 15% more likely to have returns that exceeded the industry median”. LVMH and Tiffany are certainly on the right track, but if they were to diversify their leadership team their business growth could exceed expectations.
The acquisition between LVMH and Tiffany is just one example of the growth that we could see in the commercial market post-Covid. It signifies the importance of constant reevaluation. A company can never get too comfortable in its business structures.
Yes, in the short term the weak dying out can affect employees drastically. However, this change is essential in the long term. When the weak die, the average business model of the future will improve, therefore establishing more sustainable business structures for employees.
Adaptation, innovation and synergy are essential in creating strong companies that can withstand the financial crisis that we are currently enduring. This is the natural cycle of the free market. We are simply making room for those that are willing to remodel.
Written by Junior Conservative Writer, Rebecca Selt
Point of Information
The free market can be a double-edged sword – A Liberal Response
As a whole, I agree with Rebecca’s article. She points out the benefits of a free market and its ability to bring a sense of stability and growth. Her example of the LVMH and Tiffany merger is an example of how firms can both benefit by working together.
However, we cannot underestimate the danger of allowing the free market to roam with complete freedom. If it were, we leave ourselves open to the abuse of the market by the ‘strong’ conglomerates.
Everyone loves a good underdog story. But if we push mergers and acquisitions, we won’t see many of those anymore.
The largest danger of a market monopoly is faced by the consumer. Without multiple companies competing against one another, we will see a huge spike in price. Why would a firm that has dominance in their market, with little to no competition, settle for anything less than maximised profits? They would be able to overprice their goods or services, and the public would have no choice but to comply.
Cleverly, governments around the world have placed legislation to break up such monopolies, such as the 1890 Sherman Antitrust Act. If we allow large firms to ‘merge’ with other (often smaller) firms in their market, it will be difficult to determine the difference between a monopolistic practice and letting the free market run its course.
Written by Senior Liberal Writer, Charlie Papamichael
Good for the few – A Labour Response
To reiterate Charlie’s point, what we are seeing in this pandemic is not the ‘strengths’ of the free market, but rather its ability to pool wealth and power into fewer and fewer hands. As the ‘weak’ die off, conglomerates get to dominate an increasing amount of the market, and consumers are held captive.
Amazon is a prime example of undercutting competitors’ prices, forcing them out of the market; it is a monopoly by design. As a result, poorer consumers are reliant on Amazon for their cheaper prices and ‘weaker’ companies go bankrupt. Yet, I am sure many would define it as a ‘strong’ company, and so what is there to question? Ethics? Nah, forget them.
This pandemic has widened economic inequality exponentially. The world’s 10 richest billionaires managed to increase their wealth by $319 billion in 2020. Whereas the poorest workers are the ones hardest by loss of income, pushing 150 million more people into extreme poverty by 2022, as predicted by the World Bank.
Putting Arcadia into administration is not just a rejigging of the company’s structure, it puts 13,000 jobs at risk and 10,000 employee pensions pot potentially cut. Of course, I somehow doubt that Sir Philip Green will be selling his £100 million superyacht in Monaco to supplement employees’ pensions. In fact, a petition of over 250,000 signatures has been created to call for the stripping of his knighthood, which he was given in 2006 for “services to the retail industry”. So dire is the situation that Business Secretary, Alok Sharm, has called for an investigation into the “conduct of directors at Arcadia”.
Overall, I just think the ‘survival of the fittest’ mentality that this piece advocates totally lacks empathy. It disregards those who will suffer immensely as a result of redundancy in a global pandemic. Even if you argue that economics doesn’t care about your feelings and that this is purely written in terms of the free market, it is still in bad taste.
Written by Senior Labour Writer, Abi Smuts
I am a third year student studying English and Film Studies at the University of Exeter. After completing my degree, I will be converting to law to begin my journey of becoming a commercial lawyer. As an avid reader of the Financial Times, I have begun to understand how important the commercial market is in forming global politics.
I am a second year student currently reading International Relations and Modern Languages at the University of Exeter.
Hi, I’m Abi, a final year at Uni of Exeter studying International Relations and English. To me, it was only in A Levels that I realised how important politics was, when I was stuck in my male-only, extremely conservative Politics class having to constantly justify and defend my opinions to them.