Tiffany & Co Case Study

Categories: Case StudyInvestment


Tiffany & Co. was founded in 1837 in New York City by Charles Lewis Tiffany and John B. Young. After decades of development, the company has grown to an internationally famous designer and retailer of fine jewelry, diamonds, timepieces and other luxury accessories. In July 1993, Tiffany made a decision to directly operate sales in Japan, rather than profiting from medium corporation Mitsukoshi. According to this decision, Tiffany will pay Mitsukoshi 27% of net retail sales for providing the local services and bearing the risk of holding inventories.

Below is a snap shot of the financial summary of Tiffany & Co from 1988 to 1993. The total revenues grew sustainably over the past years before the decision. However, for the cash flow statements, the company had been losing profits in terms of investments.

Two-Pillar Strategy

The new decision put Tiffany to a very difficult situation where the firm will face the fluctuation of the yen-dollar exchange rates. Due to the fact that the yen is considered to be overvalued with regards to the dollar, the uncertainty of future rates will diminish the company’s profits.

Get quality help now
Sweet V
Sweet V
checked Verified writer

Proficient in: Case Study

star star star star 4.9 (984)

“ Ok, let me say I’m extremely satisfy with the result while it was a last minute thing. I really enjoy the effort put in. ”

avatar avatar avatar
+84 relevant experts are online
Hire writer

In addition, Tiffany also keeps the company exposed to the volatility of the future exchange rate and related risks remain unhedged.

As a result, the management came up with two-pillar strategy – to sell yen for dollars at a preset price in the future with a forward contract and to buy a yen put option with the flexibility to excise in the future with a more favorable price. The first strategy is to get a short position in a forward contact, which sells yen to the counterparty at a pre-decided price in the future.

Get to Know The Price Estimate For Your Paper
Number of pages
Email Invalid email

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

"You must agree to out terms of services and privacy policy"
Write my paper

You won’t be charged yet!

Tiffany and the counterparty of the contact both have the obligations to honor the agreement until the contract is expired. The second strategy will allow Tiffany the right, but not the obligation to sell yen at a pre-decided price in the future.

Strategy Analysis

After this new agreement with Mitsukoshi, Tiffany & Co are exposed to significant exchange risk. 75 of 492 million US dollar total revenue will be settled in terms of Japanese yen. This counted for approximately 15% of the revenue of 1992. The net income would also suffer from the exposure of foreign currency exchange rate. The number of 1992 is 25 million US dollar. According to the case, there is high possibility that 10% of fluctuation would be reasonable, which may potentially cause a down fall of roughly 20 million US dollars loss. There will be no doubt that Tiffany should proactively manage its yen-dollar exchange risk. Investors value companies which will provide a solid solution for offshore business risk management.

The company may just lose portion of revenues in the beginning. However, if the issue remains lacking sufficient attention, it will eventually have negative influence on the core business revenues. Customers will start to question the company’s brand equity. Investors would doubt the continuing profit-generating capacities of the equity. These facts will cause much stronger fluctuation and more severe fundamental problems. In terms of the risk management objectives, each firm will vary because of different risk appetite. In the industry, analysts will run VaR test based on certain scenario and yield various possible results. The management should analyze on the risk within a scale which tailors to the company’s specific needs. In my own opinion, company should aim at hedging the exchange rate risk instead of gaining extra profits from the derivatives market.


From the below screen shot of yen/dollar exchange rate from 1989 to 1993, we can conclude the rate will be rather volatile and unpredictable. Additionally, there was market assumption that the yen was overvalued in terms of dollar. Therefore, it would be natural to consider the possibility of the yen crashing. Thus, a yen put option seems to be a more favorable strategy for Tiffany.

Updated: Jul 06, 2022
Cite this page

Tiffany & Co Case Study. (2016, Apr 09). Retrieved from

Tiffany & Co Case Study essay
Live chat  with support 24/7

👋 Hi! I’m your smart assistant Amy!

Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.

get help with your assignment