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 Tiffanys main goals is to ensure
the long-term integrity of the companys
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 theyll 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 luxuryMix?
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, Tiffanys employs GAAP
accounting, but also maintains industry norms for
choices not specified by GAAP.
Tiffanys previously used the LIFO inventory
method, but has recently switched over to the
Average Cost method.
The majority of competitors use the FIFO method.
Tiffanys follows the industry-wide trend of
straight-line depreciation of assets.
Due to FAS 142, Tiffanys reviews goodwill annually to
check for any impairments which may have occurred.
Tiffanys 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.
Tiffanys 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 known 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. Tiffanys ratio is underperforming
compared to its competitors. This does not
work in Tiffanys favor because it shows a
low cash flow from sales, which constricts
the companys 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 Zales and Tiffanys
continues to maintain strong
numbers in the twenties and teens
which portray high profit returns
from the money invested by
stockholders. This makes Tiffanys
attractive for investors.
Gross Margin
 Gross Margin Explained
Gross margin is a useful tool for
examining a companys operating
efficiency. Tiffanys has a very strong
and competitively high gross margin
portraying that Tiffanys 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 Tiffanys are willing to
pay the extra price for the Tiffanys
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 Decline in cash flows

strategy Strong brand name Lower returns and profit
Broad offerings margins Struggling
Strong balance sheet performance in Japanese
market

Opportunities Threats
Expansion in retail Counterfeit goods
outlets Increasing Increasing rental rates
online sales Growth in in US Slowdown of US
mens market New economy
business venture
 Competitor
SWOT
Blue Nile
Strengths Weaknesses
Strong direct selling Decline in cash flows
strategy Strong Lower return and profit
balance sheet Growth margins Limited offerings
of E-commerce Lack of physical stores
Opportunities Threats
Expansion in retail stores Counterfeit goods
Increasing online sales Slowdown of US
Increasing brand economy
recognition

Bulgari
Strengths Weaknesses
Strong direct selling Decline in cash flows
strategy Broad offerings Lower returns and profit
Strong balance sheet margins
Opportunities Threats
Expansion in retail outlets Counterfeit goods
Increasing online sales Slowdown of US
Increasing brand economy
recognition
 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
Tiffanys key
success factors
and core
capabilities
 Relative Competitive
Strength

How does Tiffany & Co. measure

up against their competition?
 Resources
Financial stability
Large stores in expensive areas
Store expansions here and abroad (206
locations)
Famous designers

Paula Picasso Frank Gehry

Elsa Peretti
 Asse
ts
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
 Imitatio
ns
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 Tiffanys
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?
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.
 Cost Structure
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 strong-hold 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
 Inventory Costing
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
Debt to Equity Ratio
 Debt to Equity
Explained
Tiffanys 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, Tiffanys 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 Tiffanys leverage ratio is not
significantly high, the indication is
that Tiffanys has low borrowing.
Competitors also have low leverage
ratios. Once again, this places
Tiffanys 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 Tiffanys 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 companys 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, Tiffanys 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 Lower- Priced 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 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 and
Disadvantages
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
 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 and
Disadvantages
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
 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 firms older, wealthier,
and more conservative clientele. In the
end, it could possibly forever damage
Tiffanys timeless reputation and image for
luxury.
 Strate
gy
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 dont plan any
dramatic change in strategy. Like all good luxury
brands, we manage this company from a very long-
term point of viewwe are certainly going to [continue
to] do that.
 Tiffanys 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 Tiffanys
brand image, Tiffany should
continue emphasizing
internet shopping, target
demographics, and store
growth.
 Tiffanys is a lifestyle; it is a
luxurious, exclusive group of
consumers. This needs to be
preserved by bringing in loyal
customer that can afford
Tiffanys 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 girls

best friend.