Tiffany Case Analysis
Tiffany Case Analysis
Tiffany and Company is one of the leading U.S. luxury jewelry brands, and their telltale “little blue box” has become a coveted item by women everywhere. Tiffany & Co. was founded in 1837 by Charles Tiffany and John Young and has grown to generate more then $2.6 billion in revenue through their 167 global retail outlets. The growth strategy that has seen them through their long reign is “growth without compromise”. In 2007, due to objections from their largest shareholder, Tiffany began looking at strategies to increase shareholder value. Two options were presented; opening new stores at a faster rate, and licensing Tiffany to an established Italian fashion-eyewear manufacturer/distributer.
The ownership of Tiffany & Co. has changed four times in the last 160 years; Walter Hoving bought the company from the Tiffany family in 1965, Avon purchased the company in 1979, and in 1984, Avon sold Tiffany for $135 million to investors who took the company public in 1987. Since going public, the value of Tiffany has grown from $135 million to $4.4 billion.
There are 3 channels of distribution that Tiffany & Co. uses to sell their products; U.S. retail stores, which account for 51% of sales, International retail stores, which account for 38% of sales, and Internet/catalogues, which account for 6% of sales. Of the international sales, about 50% were from Japan, 25% were from different Asia-Pacific countries, and 18% were from Europe. The amount of internet/catalogue sales is noticeably increasing each year, with a high of 744,000 orders in 2006.
The first international Tiffany & Co. was in Japan in 1972, followed by London in 1986, and stores were in over 10 different countries by 2007 (See Appendix A). Although Tiffany’s original strategy was to limit new-store openings to 4 to 5 per year, Tiffany revised this plan and began opening more stores at a faster rate as part of the strategy to improve shareholder value. This new approach succeeded in raising sales, but also caused a significant rise in expenses, adding up to a slight rise in gross profit. Interestingly, the new stores caused an increase in international sales, but a decrease in domestic sales.
One of the things that make Tiffany & Co. truly unique is their technique of complete vertical integration. In order to cut costs while keeping complete control of the quality level of their jewelry, Tiffany has taken many steps to vertically integrate themselves. They own their own diamond mines, have exclusive sole-source diamond supply contracts, and their own diamond-cutting, polishing, testing, grading, and measurement facilities.
In 2002, Tiffany obtained a new acquisition, the Little Switzerland chain of discount jewelry stores located in the Caribbean islands. This new asset was a new concept based around opening a pearl chain named IRIDESSE. Although Tiffany specifically kept the brands separate, IRIDESSE already has 13 stores in the U.S.
One of Tiffany & Co.’s strong assets is their employees. Tiffany & Co. has a less than 10% turnover rate, which is low for retail establishments. Employee satisfaction is high overall and over 50% of employees hold stock in the company. With such an involved bunch of employees, Tiffany focuses on rewarding brand-enhancing behavior, which helps keep and build the strong brand image.
In 2005, Tiffany pulled a surprising move and rose it’s own prices to slow down the growth of entry-level price points in silver jewelry. This is true to their motto, “growth without compromise”. They would rather cut their own sales than kill their own brand image.
Tiffany & Co.’s “Growth without compromise” strategy has been the base of Tiffany culture since the beginning, and has contributed to the long success of the company. In recent years however, the company has been suffering from a regression in sales and is facing a dilemma between upholding the Tiffany brand image and culture, which would probably show better long term results, and addressing the views of the main shareholder of the company, which would show more of a benefit now.
Suggested Alternative Actions
If Tiffany & Co were to do nothing and follow the path they are currently on, it looks like they will continue to make a profit for a while, although possibly not as high of a profit as if they were to stop their rapid advancement. Once they were to stop opening new stores they might hit a point where the profit margin would go up again.
Since the opening of more international stores, international sales have improved and domestic sales have declined. If those statistics hold strong, one strategy would be to focus solely on international efforts for the rapid opening of new stores. This way, resources won’t need to be split and more effort can go into the emerging international market.
Growth withOUT compromise
Another option would be to hold strong to Tiffany & Co. values and stick to the same strategies they have been using for the past 100+ years. Shareholders obviously hold a significant amount of value, but for a company that is so serious about building and keeping their brand image, making drastic changes to appease a few investors could be damaging to the brand. With this strategy, Tiffany & Co. would go back to their original strategy of opening no more then 5 stores per year so that they do not over-saturate the market and so that they can continue to train their employee’s in such a way that fosters excellent customer service. Although this plan might not show the largest sales increase in the next few years, I believe it will be more lucrative in the long run, once the economy is on its next upturn.
Shareholders have it
While Tiffany & Co. might have been very strong in order to hold the place it does today, their tactics are obviously worth questioning due to the recent decline in sales. The belief of the largest shareholder, Nelson Peltz, is that the company should be striving to improve its earnings per share by “addressing various operational and strategic issues”. Spurred on by this statement, Tiffany decided to go against some of its core competencies and increase its annual store openings and license the brand to an Italian manufacturer. This strategy would involve abandoning the original strategies that Tiffany has been running off of and adopting a plan that is less brand-based, and more shareholder value-based. I believe this plan shows a larger chance of upping sales in the immediate future.
Although opening more stores at a high rate is a risky strategy and a large change from the traditional Tiffany way, licensing the brand off to another company in a foreign market is directly opposed to all of the strict brand-building that Tiffany has been doing for the last 100+ years. Taking certain steps, such as opening more stores, and focusing on a foreign market, are risky but within the realm of Tiffany’s core competencies and should be taken on with care. Giving the brand over to another party with dissimilar core values and brand recognition is a very simple way to weaken the brand and I do not think it is a step that should be taken. If there is to be a balance between Tiffany values and shareholder values, I think it is important to keep complete control of the brand throughout any deal making.
I believe the best strategy to implement is actually a bit of a mix of two strategies. The growth without compromise plan meets the go international plan. The growth without compromise plan may not be the most lucrative plan at this very moment but I believe the beauty of a company like Tiffany & Co. is the rarity and the quality of it. You are buying it because it’s Tiffany! Not because it’s a diamond. They ‘ve done a wonderful job at branding their product and to take any steps that would detract from that work would only devalue the brand in the long run. The economy is not at it’s best right now so sales have been down in the last few years, but over-saturating the market with a high number of less equipped Tiffany stores is not going to solve the problem, it’s only going to make people want the product less when they have the money again.
So with that said, I believe Tiffany should stay as close to their original plan as possible, particularly in the United States. But I do also think that the foreign market can be a huge help to Tiffany right now and I think they should focus on broadening their foreign impact. I think there should be a balance between their original strategy and the go international plan, perhaps opening 10-15 stores per year in the international market as opposed to 5 or 50. This way American’s get to keep their beloved, rare, quality Tiffany & Co, and the increasing foreign market gets taken advantage of simultaneously.
To implement the growth without compromise meets go international plan, the first step would be to get all domestic Tiffany stores as “old time Tiffanys” as possible. Keep it an American treasure that everyone associates with luxury and heirlooms. Keep all licensing and IRIDESSE far from the Tiffany brand and continue to grow at a slow and steady pace. The second step would be to really kick it into gear in the foreign market, which, luckily, they’re already in the process of. They already have a map of where they want to continue to open stores internationally, the only change would be limiting the number of international openings to somewhere around 15 stores so that quality and service can still be taken very seriously so that Tiffany can continue to build their international brand image as luxuriously as they’ve built their American brand image.
Robin’s egg blue. Little blue box. Breakfast at Tiffany’s. There’s a reason all of these most likely put a mental image of Tiffany & Co. products in your head; Excellent branding! If there is one thing (and there are many) that Tiffany & Co. has done right, it’s making people want their product. It’s a shame that sales have been down but doing anything to break that strong positive association that they’ve built in America would be more harmful in the long run, and I feel that it should be avoided at all costs.