Tiffany & Company (known colloquially as Tiffany or Tiffany’s) is an American multinational and one of the world’s premier luxury jewelry and retailers. It is a public company having headquarters in New York City, NY, United States.
Tiffany sells jewelry, sterling silver, crystal, stationery, fragrances, personal accessories, as well as some leather goods. The company is renowned for its luxury goods and is particularly known for its diamond jewelry. Tiffany markets itself as an arbiter of taste and style. As of the year 2012, the company had US$3.8 billion of net sales and US$416 million of net earnings; US$2.3 billion on total equity; approximately 9,800 employees and currently operates 275 stores globally (115 in the Americas, 66 in Asia-Pacific, 55 in Japan, 34 in Europe and five in the United Arab Emirates).
Tiffany’s mission is to ensure the highest quality diamonds, ethical sourcing, lifetime warranty, affordable price options, and that they’ll always be there for you.
TIFFANY & CO. HISTORY
In 1837 New York became the proving ground for 25-year-old Charles Lewis Tiffany and John B. Young, who opened a “stationery and fancy goods” store with a US$1,000 advance from Tiffany’s father. The young entrepreneurs were inspired by the natural world, which they interpreted in patterns of simplicity, harmony and clarity. Tiffany first achieved international recognition at the 1867 Paris World’s fair. The company was the first American company to employ the British silver standard (92% pure).
Largely through the efforts of Charles Lewis Tiffany, this standard was adopted by the U.S. Government. By 1870 Tiffany & Co. had become the America’s premier silversmith and purveyor of jewels and timepieces. In 1878 Tiffany acquired one of the world’s largest and finest fancy yellow diamonds from the Kimberley diamond mines in South Africa.
In 1886 Tiffany introduced the engagement rings as we know it today. With the death of Charles Lewis Tiffany in 1902, Louis Comfort Tiffany, the founder’s son, became Tiffany’s first art director. He created a remarkable range of designs. Throughout Tiffany’s history, the U.S. Government has called upon the company to create commemorative designs. Among them are ceremonial swords for Civil War generals and the 1885 redesign of the Great Seal of the United States, which appears on the one-dollar bill. Throughout the company’s history, Tiffany designers have drawn on the natural world for inspiration just like its creators.
Nature is also the source of the precious metals and gemstones necessary for creating their designs. In 2012 Tiffany marked its 175th anniversary. To honor this milestone, the Tiffany Diamond was reset in a magnificent necklace of dazzling white diamonds, which traveled to gala celebrations around the world and it is now in its permanent place of honor on the main floor of Tiffany’s fifth avenue store. This priceless gem is symbolic of a heritage based on the highest standards of quality and design excellence, which have made Tiffany & Co. such a world-renowned jeweler.
GLOBAL MARKET ENVIRONMENT
The challenge for a luxury brand is to preserve its status by gathering exclusivity through mainly a price strategy but once the price becomes too friendly, luxury brands and lower/middle-class consumers enter in a relationship where inevitably one of them will come out hurt with a loss of integrity and weaker brand image and perception.
The strategy that Tiffany’s employs to maintain its high prices and control its costs is very competitive, and it offers room for expansion and growth within the market. Tiffany has a strong cost position among its competitors. The monopoly market for diamonds forces Tiffany into long-term contracts for raw materials purchasing. But this reliance on diamond is also placed on Tiffany’s competitors. The main cost driver is reliant upon the supply of raw materials, but this is also true throughout the industry.
Tiffany’s is consistently looking for new costumers. There were 71 million Americans born between 1977 and 1994 with a new generation entering adulthood. The largest spending segment is women ages 34 to 54. These women range from middle class to upper class economically. These women are looking for quality, unique items that are both classic and in time with the trends. They prefer to shop in more elegant settings and opt for direct personal attention when making big item purchases.
Tiffany’s competes with two types of competitors those in the luxury market whose target audience is the upper class and those who are in the specialty market whose target audience is in the middle to upper class bracket. The top competitor in the luxury market are: LVMH, Bulgari and Richemont. The competitors in the specialty market are: Signet and Zale.
STRATEGY AND OPERATIONS
Below is a SWOT analysis for Tiffany & Co. and a highlight on its main current strengths and weaknesses (internal factors to the organization) and the company’s opportunities and threats (external factors presented by the environment).
TIFFANY’S MAIN OPERATIONAL PRACTICES
Tiffany’s communication strategy supports their luxury brand persona. They stress the importance of a knowledgeable store staff that provides excellent service and both their store and online environments have an elegant appeal. Their display practices require store footprints and lease budgets that’s enable Tiffany to showcase their fine jewelry in a retail setting consistent with their “classic” positioning. Therefore many of these stores are located on the best “high street” or luxury mall locations. Packaging
Tiffany’s packaging supports their consumer’s expectations with respect to the brand, and while they cost more, they have added to their strong brand equity. Their color is also their own trademark and called “Tiffany blue”. Manufacturing
The company’s manufacturing facilities produce approximately 60% of the merchandise sold – almost all non-jewelry items are purchased overseas from third parties. The majority of Tiffany’s manufacturing is done in their New York and Rhode Island facilities (the Rhode Island facility includes a new metal fabrication section as well). The company may increase the percentage of internally manufactured jewelry in the future, but it is not expected that Tiffany will ever manufacture all of its needs because they always have to keep in mind about theirs product quality; gross
margin; access to or mastery of various jewelry-making skills and technology and the cost of capital investments. Advertising and communication
After the initial “Blue Book” Tiffany catalog was published in 1845, Tiffany continued to use their catalog as an advertisement strategy. Tiffany still has a catalog for subscribers, but their advertisement strategy is no longer focused on its catalog. They have a mail-order catalog, they also place its advertisements in many locations, including bus stops, in magazines, newspapers, and online. They even places banner advertisements in The New York Times app for the iPhone. Some of Tiffany’s advertising is intended to increase demand for particular products (i.e. new product lines, new designers, etc.). Other Tiffany’s advertising is done as brand reinforcement to continue its association with luxury, sophistication, style and romance. The overall goal is to maintain its position within the high-end jewelry market. While Tiffany’s does advertise because of their strong brand equity it is secondary nature to advertise. Their primary advertising is their historical presence, the consumer’s experience that is often spread through word of mouth, and the infamous Tiffany blue bag or box. Many of their ads are straight-forward, simple and with little copy and or imagery. The company only spends roughly 6% of their budget annually on advertising because, as mentioned before, it is all about the experience.
Mr. Michael J. Kowalski is 61 years old and has been the Chairman of the board of directors and Chief Executive Officer at Tiffany & Co. since January 2003 and February 1999, respectively. Mr. Kowalski served as the President of Tiffany from January 1996 to January 2003, Executive Vice President from March 1992 to January 1996 and Chief Operating Officer from January 1997 to February 1999. He has been a Director of Tiffany since January 1995. He holds a B.S. from the University of Pennsylvania’s Wharton School and an M.B.A. from the Harvard Business School.
Recently (on September 24, 2013), in New York City, the board of directors of Tiffany has appointed Frederic Cumenal (54 years old) as the company’s president and nominated him to an additional seat created in the board. Now, the company has ten directors altogether in its board. Michael J. Kowalski said “Since joining Tiffany in March 2011, from the LVMH Group where he was president and chief executive officer of Moet & Chandon, S.A., Frederic has made important contributions to the operational and strategic development of our business. He has brought a global luxury perspective to our brand management initiatives and, in particular, has led the evolution of our regional organizations to support our continued worldwide expansion.” In his new role, Mr. Cumenal will retain his regional responsibilities and will assume responsibility for the Design, Merchandising and Marketing functions. Mr. Cumenal will continue to report directly to Mr. Kowalski, who added, “I look forward to continuing to work with Frederic in the coming years as Tiffany pursues important growth opportunities.”
NEW DESIGN DIRECTOR
Also recently, as of September 10, 2013, Tiffany announced the appointment of Francesca Amfitheatrof as Design Director. She will oversee design of all Tiffany product categories. “Tiffany has a brilliant legacy of legendary style and design. When we combine this legacy with Francesca’s passion for jewelry and craftsmanship we have an exciting opportunity to interpret Tiffany in a new way for the modern, global consumer,” said Michael J. Kowalski. Ms. Amfitheatrof’s background is as a jewelry designer and silversmith. Her designs have been sold internationally, including at the Museum of Modern Art in New York and Colette in Paris. She has also developed jewelry for fashion brands, including Chanel, Fendi and Marni. She is a graduate of Royal College of Art, Central Saint Martins and Chelsea Art School.
BOARD OF DIRECTORS
Tiffany & Co. is governed by a board of directors elected by the company’s stockholders. Nowadays the board is consisted of ten directors. Seven of the ten directors are affirmatively determined as “independent” by the board, in that none of them had a material relationship with the company (directly or as a partner, stockholder or officer of any organization that had a relationship with the company).
The board is responsible for oversight of the company’s strategy and operations and establishes committees, as appropriate, to address specific areas of the company’s business. The responsibilities of the board include: Management succession; Review and approval of the annual operating plan prepared by management; Monitoring of performance in comparison to the operating plan; Review and approval of the company’s strategic plan, among others. The board also delegates certain authorities to the company’s Chief Executive Officer, who then may delegate authorities to other members of management of the company.
The board meets regularly, receives updates from committees of the board and reviews actions recommended for approval. The board believes (i) that management is responsible to manage the various risks that may arise in the company’s operations and (ii) that the board has a role in overseeing management in the risk management function. Each year the board reviews and approves the detailed annual business plan for the coming year and the strategic plan (four-year period) prepared by the management.
The board also reviews specific risk areas on a regular basis. Directors are required by their by-laws to be less than age 72 when elected or appointed unless the board waives that provision with respect to an individual director whose continued service is deemed uniquely important to the company. Under the company’s corporate governance principles, directors may not serve on a total of more than six public company boards. Service on the board is included in that total.
ORGANIZATIONAL STRUCTURE AND CULTURE
Tiffany cultivates a positive workplace for the employees and strives to protect and sustain the global communities in which they operate. The company adheres to sound corporate governance principles and is structured to enable continued improvement and leadership on key sustainability issues.
CORPORATE SOCIAL RESPONSIBILITY
Tiffany has a Corporate Social Responsibility Committee (CSR Committee) since 2009. The Committee identifies key environmental and social responsibility issues that may affect the business, brand image and reputation of the Company and provides oversight of corporate responsibility programs.
SUSTAINABILITY AND CORPORATE RESPONSIBILITY
Corporate responsibility is integrated into every aspect of Tiffany & Co. The Global Sustainability & Corporate Responsibility department works to ensure that Tiffany & Co. operates in the most responsible manner. The Department works collaboratively with the internal and external stakeholders to continuously improve corporate responsibility performance and play a leadership role within the industry. Tiffany was an early proponent of obtaining materials in ways that are socially and environmentally responsible.
As Michael J. Kowalski has said, “Our position as a leader in the luxury jewelry market gives us the opportunity and the responsibility to conduct our business in a manner that is consistent with our core beliefs – protection of the environment, respect for human rights and support for the communities in which we do business.”
BUSINESS CONDUCT POLICY AND CODE OF ETHICS
Tiffany has a long-standing policy governing business conduct for all company employees worldwide. The policy requires compliance with law and avoidance of conflicts of interest and sets standards for various activities to avoid the potential for abuse or the occasion for illegal or unethical activities. Each year, all employees are required to review the policy.
Tiffany has also a Code of Business and Ethical Conduct for the directors, the CEO and all other officers of the company. The Code advocates, and requires those persons to adhere to principles and responsibilities governing professional and ethical conduct. This Code supplements Tiffany’s business conduct policy.
The company has a toll-free “hotline” to receive complaints from employees, vendors, stockholders and other interested parties concerning violations of the company’s policies or questionable accounting, internal controls or auditing matters. Users of this service may elect to remain anonymous.
DIRECTOR COMPENSATION TABLE
The company has a policy, which can be found on the company’s website, to compensate their directors. For example, each director receives annual equity compensation with a value of US$125,000 on grant, half in the form of a 10-year term stock option and half in the form of restricted stock units (payable after one-year of service or on retirement).
All options have a strike price equal to fair market value on the date of grant. There is a retirement benefit for directors first elected prior to January 1, 1999 and for directors who retire as non-employee directors with five or more years of board service (their annual retirement benefit equal to US$38,000). Nowadays, Mr. Kowalski is an employee of Tiffany. He therefore receives no separate compensation for his service as director.
Tiffany has good perspectives about the future. The company said it plans to open 15 new company-operated stores including five in the Americas, seven in Asia-Pacific, three in Europe; while closing one in Japan. One of these stores is a two-level store in a high-end department store in Moscow, a move that will give the jewelry retailer its first wholly owned retail business in Russia.
The company also plans and to refurbish a number of existing locations around the world. Additionally to the investments on opening new stores, the company recently invested in human resources and expects that the new president and new design director’s vast experiences and expertise boost the company’s future prospects. Kowalski said he expects single-digit growth in Tiffany’s 2013 fiscal year. “We will be pursuing important growth opportunities in 2013, with plans including exciting new jewelry collections, enhanced customer communications through print and digital media, and expansion of our global base with additional stores,” he said.
The strong position that they have established in the marketplace is not likely to disappear, and it will only continue to grow once they counteract the changing environment with implementing a strategy that reiterates their founding vision. According to Louis Cona, publisher of Vanity Fair, “There will always be a luxury consumer, and they’ll continue to spend whether there are wars or diseases or whatever.” However, it is important to mention that Tiffany’s strategy of opening smaller retail outlets in the USA seems flawed and should probably be reversed. The company’s model is better suited for larger stores in cities that will draw significant traffic.
Moving into smaller cities with smaller stores is likely to raise costs far more than revenues in the long term. Therefore, Tiffany needs to adapt while still holding on to their core value, which strengthens their brand image. Effective branding creates market resilience. The Tiffany blue box and the Tiffany & Co. brand have developed into one of the best-known symbols for quality, prestige and value in retailing. The CEO states “We don’t plan any dramatic change in strategy.
Like all good luxury brands, we manage this company from a very long-term point of view and we are certainly going to continue to do that.” Given what the CEO states, Tiffany should probably devote a higher amount of time and effort to its marketing and advertising strategies to help assist the performance of Tiffany’s brand image. It has a luxurious, exclusive group of consumers. And Tiffany should preserve it and bringing more people in by continuously emphasizing their original values and grow their timeless, legendary brand image. Tiffany is a lifestyle. It is safe to say that the Tiffany and Co. will not fade away. After all, diamonds will always be a girl’s best friend.
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