Tiffany and Co. Competitive Analysis
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Team 6
Jessica Aragon
Raynee Bradley
John Cayo
Cole Naylor
Jessica Wilson
Brandy Wolfe
Tiffany and Co.
• In New York City in 1837, Charles Lewis Tiffany and
John F. Young founded Tiffany and Young, a store
dedicated to selling stationery and costume jewelry.
• In 1845, began selling “real” jewelry.
• It was not until 1853 that the store became known as
Tiffany and Company.
• During the late 1940s it added silverware, timepieces,
perfumes, and other luxury items.
• Throughout history they have managed to solidify their
position as the leading competitor in the jewelry
industry through creating a brand that shows value,
quality, superior design, and exclusivity.
Tiffany and Co.
• Strong brand name and customer loyalty.
– Infamous Tiffany Blue Box
• One of Tiffany’s main goals is to ensure the long-term
integrity of the company’s brand by creating a “feel
good” experience.
• Mature stage of the product life cycle.
• Experienced large growth for the past thirty years.
– The jewelry industry relies heavily on consumer spending,
which in turn relies on a strong economic climate.
Tiffany and Co.
• Even during this highly volatile economic
downturn, Tiffany and Co. is a highly attractive
company and the leading competitor.
• 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.”
Current Strategy
• Launching new, lower-priced products to take
advantage of the growing number of consumers
demanding quality goods at lower prices.
• Target: Middle income - introduce products with prices
ranging from $100 to $250
• Affordable luxury and Exclusive luxury…Mix?
• Must assure its affluent customers that the quality of
its products and service has not lessened even though
its brand has become more affordable.
• Has created mass amounts of short term revenue, but
in the long run it could be detrimental to the once
timeless, exclusive brand.
Accounting/Financial Strategy
Accounting Criteria
• Tiffany and Co. is consistently conservative in its financial and
accounting practices.
• As required by U.S. law, Tiffany’s employs GAAP accounting, but
also maintains industry norms for choices not specified by GAAP.
• Tiffany’s previously used the LIFO inventory method, but has
recently switched over to the Average Cost method.
– The majority of competitors use the FIFO method.
• Tiffany’s follows the industry-wide trend of straight-line
depreciation of assets.
• Due to FAS 142, Tiffany’s reviews goodwill annually to check for any
impairments which may have occurred.
• Tiffany’s follows the point-of-sale revenue recognition principle.
– This practice does not recognize revenues until an actual purchase has
been made and maintained
Accounting Flexibility
• The use of GAAP practices allows for a great
deal of flexibility in several areas.
• The options available for inventory costing,
depreciation, goodwill, and pension
accounting provide companies with leverage
and flexibility in their financial statements.
Flexibility in Inventory
• Flexibility in inventory costing can change
margin, profits, and expenses.
• Tiffany’s previously employed the LIFO costing
method which creates the highest inventory
expenses of the three methods.
– This also portrayed lower profit margins and more
conservative accounting
• The switch from LIFO to Average Cost inflated
profits by lowering inventory expenses.
Flexibility in Pension Accounting
• Pension accounting practices in the U.S. has been
recently scrutinized.
• In order for Tiffany and Co. to more accurately estimate
pension expenses indices such as the Merrill Lynch
yields reports are referenced.
• Tiffany and Co. also uses what is know as the projected
unit credit actuarial method for financial reporting of
pension expenses.
– This method involves the use of a certified actuary to
estimate and attest to the estimated pension expense to
be realized by a company, and is regarded to be the most
accurate and reliable.
Net Sales/ Net Receivables
Net Sales/ Net Receivable Explained
• Taking sales and dividing them by A/R finds the A/R
Turnover Ratio. This gives the interested parties a more
visible picture of how many sales are made on account
while the rest are in cash. A higher ratio is ideal
because it shows a company that receives cash instead
of waiting on accounts to be realized. Tiffany’s ratio is
underperforming compared to its competitors. This
does not work in Tiffany’s favor because it shows a low
cash flow from sales, which constricts the company’s
flexibility in cash and drive potential investors away.
Reasons for this low ratio is fewer customers coming in
or not receiving payment of accounts as quickly as
expected.
Return on Equity
ROE Explained
• Tiffany and Co. shows not only a greater ROE
than its competitors and the industry, but also
a more steady ROE over the years. There are
no drastic changes like those experienced by
Zale’s and Tiffany’s continues to maintain
strong numbers in the twenties and teens
which portray high profit returns from the
money invested by stockholders. This makes
Tiffany’s attractive for investors.
Gross Margin
Gross Margin Explained
• Gross margin is a useful tool for examining a
company’s operating efficiency. Tiffany’s has a
very strong and competitively high gross margin
portraying that Tiffany’s is more capable of
profiting off of each sale made than both its
competitors and the industry as a whole.
However, this added margin is most likely the
result of price mark-ups. This is not necessarily a
bad thing since most of the customers of Tiffany’s
are willing to pay the extra price for the Tiffany’s
brand name.
Marketing & Advertising
• Tiffany Blue
– Robins egg blue box
• Target market
– Upper-middle to
high income consumers
• Advertisements
• Pop culture
• Something for everyone
Working for Tiffany & Co.
• Who they hire
• What the employees are saying
• Commitment to being environmentally and
socially responsible
Tiffany & Co. SWOT Analysis
Strengths
Weaknesses
Strong direct selling strategy
Strong brand name
Broad offerings
Strong balance sheet
Decline in cash flows
Lower returns and profit margins
Struggling performance in
Japanese market
Opportunities
Threats
Expansion in retail outlets
Increasing online sales
Growth in men’s market
New business venture
Counterfeit goods
Increasing rental rates in US
Slowdown of US economy
Competitor SWOT
Blue Nile
Strengths
Weaknesses
Strong direct selling strategy
Strong balance sheet
Growth of E-commerce
Decline in cash flows
Lower return and profit margins
Limited offerings
Lack of physical stores
Opportunities
Threats
Expansion in retail stores
Increasing online sales
Increasing brand recognition
Counterfeit goods
Slowdown of US economy
Bulgari
Strengths
Weaknesses
Strong direct selling strategy
Broad offerings
Strong balance sheet
Decline in cash flows
Lower returns and profit margins
Opportunities
Threats
Expansion in retail outlets
Increasing online sales
Increasing brand recognition
Counterfeit goods
Slowdown of US economy
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
Overlap of Tiffany’s key
success factors and
core capabilities
Relative Competitive Strength
How does Tiffany & Co. measure up
against their competition?
Resources
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Financial stability
Large stores in expensive areas
Store expansions here and abroad (206 locations)
Famous designers
Elsa Peretti
Paula Picasso
Frank Gehry
Assets
• Most valued assets is the Tiffany brand
– others valuable assets include quality and reputation
• Elegant perception of the brand makes price
premiums possible
• Will not compete on price
Imitations
• Many product styles are “imitated” but none
are comparable in quality
• Counterfeit goods (streets and eBay)
• Tiffany Blue Box is non-imitable
Substitutes
• Other symbols of status and success: cars,
clothing, cosmetics, hand bags, homes
• The average Tiffany’s consumer is also
purchasing beautiful homes and
expensive cars.
• “Superior race” that strives for elegance,
quality, and exclusivity in all aspects of
their lives.
Relative Cost Position
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.
Differentiation or Focus?
• Tiffany’s 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 Tiffany’s is known
for differentiates it from all other companies.
• However, Tiffany’s is more focused on separate
markets and target groups within them
suggesting a more focused cost strategy.
Cost Structure
• Tiffany’s main source of capital is through
external investors, not debt financing
• As previously stated, the main cost is the cost
of raw materials.
– The strong-hold over diamonds by companies like
DeBeers and Aber Corp. have forced Tiffany’s into
long term contracts for raw materials purchasing.
– This reliance on diamond is also placed on
Tiffany’s competitors
Inventory Costing
• Tiffany’s used the LIFO method for inventory
costing for years, but recently switched to the
average cost method.
• Most of the jewelry industry, and Tiffany’s
main competitors use FIFO instead.
– This inflates competitor financial statements by
portraying a smaller number for inventory
expenses
Debt to Equity Ratio
Debt to Equity Explained
• Tiffany’s debt to equity ratio of 0.23 in 2005
shows that the company uses more equity,
also known as investor capital, than debt to
finance its activities. Related to competitors
and the industry, Tiffany’s ratio is a little lower
than average meaning that as a whole, the
industry is still using a larger portion of equity
financing than debt financing.
Leverage Ratio
Leverage Ratio Explained
• The leverage ratio indicates how much a
company has borrowed. Since Tiffany’s
leverage ratio is not significantly high, the
indication is that Tiffany’s has low borrowing.
Competitors also have low leverage ratios.
Once again, this places Tiffany’s in the middle
of the industry mix with room for growth.
Relative Cost Position
• Tiffany and Co. has a strong cost position
among its competitors. The main cost driver is
reliant upon the supply of raw materials, but
this is also true throughout the industry. The
strategy that Tiffany’s employs to control its
costs and financial distributions is very
competitive, and it offers room for expansion
and growth within the market, as well as into
broader and newer markets.
Identifying Strategic Issues and
Problems
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.
• The best way to determine how to address
these issues is through a scenario analysis.
Scenario Analysis
• A scenario analysis is basically a what-if analysis.
• The purpose of this analysis is to allow improved
decision-making by addressing all issues and giving full
consideration of outcomes and their implications.
• This will involve evaluating the current condition of the
company’s external environment, consumer
environment, and internal environment.
The External Environment
• The economy has been of increasing concern as it has
continued to decline.
• Tiffany & Co.’s sales have continued to decline, and now, as
of the fourth quarter of 2009, their net income has
plummeted 76 percent.
• However, Tiffany’s has mentioned “robust sales in most
global markets offset the sales decline”
• Another factor of the external environment is the inflation
on raw materials.
The Consumer Environment
• There are two main social classes, consisting
of:
– Upper class
– Upper-Middle class or “aspirational buyers”
• Missing segment of the consumer base.
The Internal Environment
• This consists of the inherent competencies of
the firm and the structure of its internal
systems and processes.
– Core Competencies
– Key success factors
• For Tiffany & Co., the internal environment
has created the foundation of its success.
Realistic Options/Choices
• Locked into the option of only making
improvements in their same basic strategy.
• There are two basic options:
– Option 1: Broaden Scope Through LowerPriced Jewelry
– Option 2: Focus on Brand Image and
Exclusivity
• 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 Tiffany’s
• Tiffany’s 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 and Disadvantages
• Advantages
– Increases sales and market share
– Preserves the missing segment of aspirational buyers
– Stabilizes the company during the recession
• Disadvantages
–
–
–
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Only a short-term fix
May compromise the integrity of the brand
Could drive away the upper-class consumers
Creates long-term profit loss
y
• Instead of broadening their scope, this option
proclaims that Tiffany’s 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 and Disadvantages
• Advantages:
– Consistent with the brand image
– Maintains long-term success
– Upholds the company’s “exclusive” reputation
• Disadvantages:
– Risk riding out the recession
– Short-term loss of profits and market share
Favorable Option
• We feel that option 2 is the most favorable option for
the company.
• Recent results with Tiffany & Co have proven that
lower-priced products compromise the integrity of
their brand. ~ silver charm bracelet
• These lower priced products are likely to alienate the
jewelry firm’s older, wealthier, and more conservative
clientele. In the end, it could possibly forever damage
Tiffany’s timeless reputation and image for luxury.
Strategy
• Our strategy for Tiffany and Co. came
down to one key factor that needs to be
maintained: their exclusive brand.
• Effective branding creates market resilience.
• The Tiffany blue box and the Tiffany & Co.
brand has developed into one of the best-known symbols for
quality, prestige and value in retailing.
• CEO Michael Kowalski 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–we are certainly going to [continue
to] do that.”
• Tiffany’s needs to adapt while still holding on to their core value,
which strengthens their brand image. Stick to what they do best!
How to maintain their brand image?
• Tiffany should devote a high amount of
time and effort to its marketing and
advertising strategies.
• To help assist the performance of
Tiffany’s brand image, Tiffany should
continue emphasizing internet
shopping, target demographics, and
store growth.
• Tiffany’s is a lifestyle; it is a luxurious,
exclusive group of consumers. This
needs to be preserved by bringing in
loyal customer that can afford Tiffany’s
quality jewelry.
Tiffany and Co.
• We believe that Tiffany and Co. should continue to
emphasize their original vision and grow their timeless,
legendary brand image.
• A strong balance sheet, “real” assets, a visible global
growth story, and long term market share
opportunities further support this view.
• Even with the current economic crisis, it is safe to say
that the Tiffany and Co. will not fade away.
Tiffany: Radiant Brilliance
After all, diamonds will always be a girl’s best friend.