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Tiffany & Co. and Elsa Peretti have cemented their partnership with a deal that will pay the designer $47.3 million.
The deal not only marks a renewal of their relationship, which began in 1974, but it also puts an end to speculation that Tiffany and Peretti will soon part ways.
In May, Tiffany said the 72-year-old Italian designer, who received a royalty for the brand’s use of her intellectual property, had expressed interest in “retiring” from their relationship last year.
That had the financial community worried, as Peretti-designed jewelry accounts for 10 percent of Tiffany’s net sales. In 2011, Tiffany reported revenues of $3.64 billion.
Peretti is responsible for some of Tiffany’s most celebrated jewelry, including the open heart and bean pendants and the diamonds-by-the-yard necklace.
“Elsa’s designs are as timeless as they can be,” a Tiffany spokesman told WWD. “It was our intention to make sure that her designs remain at Tiffany for a long period of time.”
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Initially, Peretti wanted Tiffany to purchase her intellectual property rights, but the two parties were unable to come to an agreement, the spokesman said. One issue Tiffany had under the original contract was that both sides could give just six months notice to withdraw from the partnership — a provision that, considering Peretti’s sizable sales contribution, was concerning.
According to the deal dated Dec. 27, Peretti retains her intellectual property, but Tiffany will pay the designer $47.3 million to ensure that her designs remain at the retailer for 20 years. The payment will be amortized over the duration of the license, amounting to a $2.4 million expense on Tiffany’s income statement over 20 years.
Tiffany will also pay Peretti a basic royalty of $450,000 “per fiscal year during the term,” which would earn Peretti another $9 million, plus a royalty of 5 percent of net sales during the term. There is also a quality control services fee equal to 2 percent of net Peretti sales, for a total of 7 percent of net sales.
Additionally, Tiffany will help grow “Peretti objects,” or home goods and other accessories. The designer requested that Tiffany beef up its inventory of this category, and thus devote a portion of its advertising budget to its promotion. In order to sell more Peretti home wares and accessories, Tiffany will reduce the retail prices of those goods in the U.S. by 20 percent. The spokesman said objects account for a minute percentage of Peretti’s total sales, and it would be negligible to the retailer’s financials.
With the new contract in place, Peretti may not sell, lease or otherwise dispose of her intellectual property unless the buyer expressly agrees with Tiffany to be bound by the provisions of the deal. The agreement also provides that any heir, estate, trustee or permitted successor or assignee of Peretti will be bound by the terms of the Tiffany deal.