Tiffany and Co Case study

Case Agenda
Is blue box packing a great strategy?
Given that spending in the luxury retail market has demonstrated
resilience during and post recessionary times, how can Tiffany
continue to grow? Will it be able to maintain a prominent brand in
future?

Company History
Timeline
1837: Founded in New York by Charles Lewis Tiffany and John F.
Young: The Blue Box introduced
1910-1940s: 57th street and Fifth Avenue Flagship store
2000: Tiffany and Co. foundation established
They sell jewelry, timepieces, silverware etc using their key stores in
high profile locations. 90% of their revenue is from jewelry.
Out of 90%, 57% revenue is generated from their affordable line
collection.

PORTERS V FORCES
Competitive Rivalry
a) Market is fragmented with Tiffany having the second largest
market share after Signet
b) People can go to other retailers such as Cartier, Signet or Blue
Nile
c) Even the chain stores, like Costco is posing huge competition not
because of cheap cost and good quality but also good return
policy.
Customers can get bigger carat diamonds of next to similar
quality at half a price; the only difference is the brand and bi big
blue box packaging.

Supplier Power
a) Few diamond suppliers in the world, so they have power to
dictate prices.
b) Moreover they do diamond cutting and polishing on their own

Buyer Power
a) Buyers have high disposable income
b) They feel connected with the brand
c) Able to choose from retailers and easily switch, so emphasis on
experience

Threat of Substitutes
a) When buying engagement rings, there are few substitutes
b) When buying other designer pieces and accessories then wide
range of options and retailers.

Barriers to Entry
a) High cost of capital to start a luxury jewelry business
b) Consumers likely to shop from a brand that they know

Analysis of external factors

Political: Government plays a key role in mining practices, so there is
an ease in getting raw material at cheap prices.

Economic Factors:
a) Asian markets are growing extensively especially China. It is the
fastest growing and second largest luxury market in the world.
b) America is the largest diamond market followed by China.

Social factors:
a) Spending on luxury goods has increased
b) Brands are more important to customers than products.

Technology:
All jewelry designers use Computer Aided Design

Analysis of Internal factors: Resources

Intangibles:
Brand name and image i.e. high quality, sophisticated, classic
Moreover their CSR activities add to their image.

Human Capital:
a) Sales training
b) Design team, which includes leading designers Elsa Peretti, Frank
Gehry and Paloma Picasso.

Tangibles:
a)
b)
c)
d)

Inventory
Real Estate
Prestigious store locations
Metal and gemstone mines.

Core Competencies and Competitive

Advantage
Core Competencies
a)
b)
c)
d)
e)
f)

Design and innovation

Marketing and excellence
Brand development
Customer service
Quality and craftsmanship
Distribution

Competitive Advantage
a) Product differentiation
b) Brand loyalty

c) Online retail presence

SWOT ANAYLYSIS OF TIFFANY

Strengths

Majority in-house production

(60% production and 70%
diamonds sourced directly from
mines)
Strong brand in the highly
fragmented market
(2.1% market in the real jewelry
market and ranks 2nd in market
share)
Strong direct selling channels
(21.7 M catalogues in the US in
2006 and 0.7M sales via
telephone, internet or US mail)
Broad offerings
(About 3,500 products-jewelry,
timepieces, sterling silverware,
china, crystal, fragrances,
stationary, precious and semiprecious stones, titanium etc.)
CSR initiatives
(Bristol Bay Protection Pledge to
preserve salmon fishery and
surrounding wilderness and uses
100% recyclable paper and blue
bag etc)

Weaknesses

No Promotion model
(Average engagement price range
$10,000 three times the market
average, never offers any
discounts or promotions, etc.)
Increase in debt and interest
payments
($4,00 M long term debt since Dec
2008, increase in interest expense
to $26M from $4.2M in 2008)

Opportunities

Threats

Economic Recovery
(Jewelry market grow by 4%,
even in economic troubles market
was $48 billion in US)
Bridal jewelry
(2009-2025, About 80M people
are reaching marriageable age)
The Asian Factor
(Growing high net worth
individuals in Asia Pacific. 2.9 M
millionaires in NA, 2.8M in EU and
2.4M in Asia Pacific)
Small Store Format
(From 15,000 sq ft, attain high
productivity of $1,000 per sq ft)
Tiffanys for Men
(Mens toiletries segment is $2.4
B and growing at 3%)

Margin Pressurized
(Jewelry price inflation at
producer level by 6.7% and retail
price decline by 0.4% due to
economic conditions, thus
shrinking profit margin for jewelry
retailers)
Counterfeit crime hurting
brand image
(Australian Customs and Border
Protection Service seized 10,778
fake Tiffany items generating loss
of $8.5 B and damage to brand)
Disappointing performance in
JP market
(Low customer confidence in JP
market, 2005 and 2007 revenues
dropping by 22.3% and 18.6%,
closed 7 store in Japan)

COMPETITOR SWOT
BLUE NILE

BULGARI

Key Success Factors and Core

Capabilities
Key Success Factors

Introduction and execution of e-commerce

Understand economic conditions and reacting
Aspects of consumer spending

Core Capabilities

Ability to select and display high-end jewelry to create a

sustainable advantage
Constantly strive towards innovation
Commitment to the highest standards for social and
environmental responsibility

Cost Strategy
There are three types of cost strategy:
Cost Leadership
Differentiation

Focus
The main cost in the jewelry industry, and thus experienced by Tiffany
and Co. is the cost of raw materials: diamonds, gold, platinum etc.
Tiffanys offers a broad product range to several types of markets.
Their main focus is in the fine jewelry and bridal markets.
The signature blue box which Tiffanys is known for differentiates it
from all other companies.
However, Tiffanys is more focused on separate markets and target
groups within them suggesting a more focused cost strategy.
Tiffanys main source of capital is through external investors, not debt
financing
As previously stated, the main cost is the cost of raw materials.
The stronghold over diamonds by companies like DeBeers and Aber
Corp. Have forced Tiffanys into long term contracts for raw materials
purchasing.
This reliance on diamond is also placed on Tiffanys competitors
Tiffanys used the LIFO method for inventory costing for years, but
recently switched to the average cost method.
Most of the jewelry industry, and Tiffanys main competitors use FIFO
instead.
This inflates competitor financial statements by portraying a smaller
number for inventory expenses

Strategic Issues and Problems

The main strategic issues that Tiffany and Co. must consider involves:
The state of the economy

And whether they should take a short-term or long-term

approach to stabilizing their current condition.

Realistic Options/Choices
There are few basic options:
Option 1: Broaden Scope Through Lower-Priced Jewelry
Option 2: Focus on Brand Image and Exclusivity
Option 3: Expand distribution channels
Option 4: Expand into Europe and Asia

Option 1: Broaden Scope Through Lower-Priced Jewelry

Tiffany & Co. is known for being innovative, and this would be a good
opportunity to differentiate themselves from their high-end discounting
competitors.
Discounting a price is never an option for Tiffanys
Tiffanys could introduce more high quality, yet appropriately priced,
lines of jewelry to accommodate this volatile time period.
This option focuses on stimulating short-term sales to stabilize the
company during the recession.
Advantages

Increases sales and market share

Preserves the missing segment of aspirational buyers
Stabilizes the company during the recession

Disadvantages

Only a short-term fix

May compromise the integrity of the brand
Could drive away the upper-class consumers
Creates long-term profit loss

Option 2: Focus on Brand Image and Exclusivity

Instead of broadening their scope, this option proclaims that Tiffanys
should focus on building and maintaining their high-end identity.
This can be done through having consistent product assortments that
are symbols of quality, prestige, and value.
This options focuses on maintaining long-term success and
profitability. Thus, it requires riding out the recession.
Advantages:
Consistent with the brand image
Maintains long-term success
Upholds the companys exclusive reputation
Disadvantages:
Risk riding out the recession
Short-term loss of profits and market share

Option 3- Sell through distribution channels

Advantages

Ability to access broader market base through increased

availability of Tiffany and Co. products
Retain high-end brand exclusivity by sharing store space with
established, recognized, high-end retailers.
Allow for great accessibility and marketing of lower-priced Tiffany
products through expanded distribution channels

Disadvantages

Risk of perceived brand dilution from top-tier Tiffany consumers

Increased cost of operations to expand distribution network.
Cost of contract with department stores

Option 4- Expand in Asia and Europe

Advantages

Demand Condition in Europe Prestige of

fashion/image/designers
Fill out Tiffanys demand curve-Absorb wider range of diamond
inventory-i.e., supply of different carat sizes filled
Related and Supporting industries: Antwerp diamond market is
located in Europe (Belgium)
Europe itself is a huge market (e.g., 1% of raw diamond market is
20% of Chinas market)
By 2016 Asia-Pacific growth is anticipated at 25%
By 2016 Europes anticipated growth is only 9% however, this is
outweighed with the relative size of the European market.
Average luxury consumer age China is 20 years younger- huge
potential market.

Disadvantages

Many countries trends indicate a lower tendency to buy

engagement rings with diamonds-only the bands are purchased
Further expansion in Asian market can increase counterfeiting,
which can lead to brand dilution.

FINAL THOUGHTS
To ensure profitability, Tiffanys top management must create a
strategy to grow with this market trend: customers are spending more
money in the luxury retail market.
It should go with a strategy mix where it focuses on brand image and
broaden its market share to an extent, by low medium priced jewelry
and via distribution channels. Moreover in near future it should plan to
grow its business by focusing on opening new stores in Asia and
Europe.
So a policy mix that suits its financial strength and goals should be
used.
IMPLEMENTATION STRATEGY

Determine best locations within Asia-Pacific by income levels

Design should be aligned with local culture (Chinese and Indian

designs)
Promotion through high end launch parties
Promotion through international and local celebrities.