Tiffany’s Little Blue Box: Does It Have Any Strategic Significance? at abou dat he Bue bok. from VV Bertha pa ty thou in resve on cout ud peta auisgentalgit? Door ta se bor al ign Stn thr leo oie At re does that bos fit into Tiffany's overall strategy? From sales of only $4.98 on its opening day in 1837 to becoming one of the most well-known jewel cers in the world, Tiffany 8¢Co. has long been viewed as. ' premier retailer of distinctive and lucurious jewelry, chiefly for very well-to-do consumers, But according to some analysts, both the Internet and big-box real: cers have forever impacted the way many consumers shop for jewelry, and there are signs thatthe lingering clfeets of the global recession may have diminished the appeal of powerful global brand names because ‘budget-conscious consumers have increasingly begun seeking out products that deliver more value for their money. Given this, could it be that the old saying “dorit Judge a book by its cover” is coming back in style where high-end jewelry is concerned? Can iE any confidently count upon customers concluding that a one-carat diamond ring in a Tiffany blue box dalivers more value than, say, a compatably priced three-carat diamond ring fom Costeo Wholesale for an Internet jewelry retailer tke Blue Nile? Might sionary ot slow growth economic conditions precipitate such significant and sweeping shifts in ‘consumer preferences and buying habits for jewelry hati wil become difficul for Tiffany (o sustain its plane for international expansion and continue with its preinium-priced differcatation strategy of produc- ing and marketing distinctive jewelry forthe affluent? COMPANY BACKGROUND Tiffany & Co, was founded in New York City in 1837 by Charles Lewis Tiffany and John Young. The company, which was then called Tiffany & Young was originally set up as a ‘stationery and fine goods emporium” that sold a varity of fine stationery and costume jeweley. It wastt nil 1845 that the company began selling everyday fine jewelry. In the 1840s, the company also published its first mail-order catalog“The Blue Book” and also added timepieces, silver ‘ware, perfumes, and other luxury goods toils product line. Throughout the 1800s, Lewis aud Young quickly and greatly expanded their company and business ‘operations. In 1851, Lewis and Young bought out the city’ silversmith operations and added the design and ‘manufacture of silver to thelr business, With the new ‘manufacturing capabilites, Tiffany & Co, became the first company to institute the 925/1000 silver standard, which later was adopted as the sliver standard for the US. Shorey alter in 1853, Charles Lewis bought ‘out his two partners, fohn Young and J. L Els, and renamed the company to what we know it as today: ‘Vllany & Co. Tiffany & Co, found is main consumer base to be wealthy Americans who desired the finer things in Tie. It won multiple awards at jewelry and silverware conventions, which only further solidified the Tiffany & Co. name in the ever-growing jewelry industry. In 1878, the company acquired the Tifeny Diamond, one of the largest yellow diamonds in, the World, weighing in at 287 carats, In 1886, Lewis mtr: duced the signature Tiffany engagement ring setting, which is sil a best-seller at Tiflany & Co. By 1887, the company had more than $40 million dollars of pre- cious stones. In 1902, Charles Lewis Tiffany passed away and his son Louis Comfort Tiffany joined the firm and became the company's frst design director. Louis later died in 1933, Following the Great Depression, the company ‘moved mio ils famous flagship store on Sth Avenue fn the heart of Manhattan, here i ertains ta 1995, the Tiffany is sold heir imezest ia the cow: briny to Waiter Howing, who besume she new CEO and opened stores in San Brancico and Beverly Hill Galitorni, as well as Houston, Texts. Sales contin ued to grow in the 1970s and the coanpany was then sold to Avon Cosmetics in 1979, Avon increased Ti fany & Co’ line of less expensive items, which was cctiticized by many as turning the sore into an average department store rather than a fine jevelry and silver retailer. In 1984, the company was then sold again to a group of investors, including then-CEO William ney. Chaney immediately began trying to reinstate ‘the exclusivity and luxury that once was Tiffany & Co, In 1986, the company expanded Into Europe, and in 1987 it went public with approximately 30 retail locations worldwide. The 1990s proved tobe a decade ‘of expansion for Tiffany & Co. as well, They opened ‘over 20 new retail stores nationwide. In 1999, Michael ‘Kolwaski became CEO and the company bought stakes ‘na diamond supplier, Aber Diamonds, Tiffany & Co. also launched their fist online store and website in 1999. In 2000, the company founded the Tiffany & Co, Foundation, which provides grants to nonprofit orga. nizations working In the environment and the arts ‘The company also discontinued sales to retailer in the US. and Europe in order to try to regain control of their image and pristine brand name. In 2010, the company continued to expand into the Asia-Pacific region, opening eight stores, and then another three stores in Europe. In 2012, Tiffany & Co. celebrated 175 years of excellence with sales worldwide totaling over $3 billion, COMPANY STRATEGY ‘Tiffony & Co. has made it a priority to maintain the luxury brand and service that Charles Lewis Tiffany founded the company on in 1837. It stil targets the ‘more affluent population and still maintains cheit no. haggling policy, something which dates hack to the original store. Today, its mission statement remains the same: “to be the worlds most respected jeweler Focused on customier service, Tiffany & Co. abides by strict iting standards. Every employee mist complete sx to eight weeks of training in knowledge, skis, and oduct training, as well as pass a writen test before they ar allowed to meet with customers and work on, the Tiffany & Cu. sales floor. The company is also very proud of the high-quatiy standards instilled in its cul {ure since its founding by Charles Lewis, ‘The blue box ‘created by Charles Lewis fiffany himlt i tll given, to each customer upon the putchase of prove. le ne company, the lie blue bax is syrabol of Filleny's high-quality products ts commitment to excellence, solid tradition and consistency ts respect for custom rs and their needs, and of course fany’s pvistine reputation, ‘Over the years, Tafany has insisted on opening its doors to all types of buyers. (has vastly expanded its product offering, and even added low-priced “tour ist items, such asa dock of cards for those individuals Iust looking for a glimpse of the Tiffany experience Approximately 90 percent ofits overall sales, however, ‘comes from its jewelry selection. The sale nf silver and gold items makes up about a thid of the company's Fevenues. Another third of is revenue stream comes from theic quintessential engagement rings and wed. ing bands. Although a large portion of Tiffany’s sales ate generated from jewelry, much of their revenue also comes from their ever-expanding product line Currently its main business slrategy is 9 continue‘expanding that product line, but in a way that does not Aiminish Tiffany’ prestigious brand name. In order to achieve this goal, the company is very selective in the \ypes of products it chooses to carry, while continutng (o expand its target market through its Blue Book Cat- slog, website, and new retail markets. In expanding lts accessories line, Tiffany & Co, acquired the luxury handbag and footwear line Lambertson ‘Truex from Samsonite in 2009, Previously, in 2006, Tiffany linked with luxury eyewear company Luxottica to begin pr: duction of a Tiffany-branded ophthalmic and sun eyewear collection. Starting in 2008, this eyewear callection was carried in all of Tiffany’ retal stores. In addition, Tiffany’ product line includes a varity of meni and women’s jewelry as wall as key chains, handbags, eyewear, scarves, leather goods, table wear, ‘ases, and other tems. Tiffany & Co. isnt just about jewelry, however: Since 1860, the company has also made a variety of silver producis for multiple sporting event aveards For instance, in 1909 Tilfany created an eight-foot trophy for the Indianapolis 500 and continues 10 ‘make the NASCAR Sprint Cup today. Tiffany has also created the NTL Vince Lombardi Super Bowl Trophy since 1967, the fist world charspionship baseball to phy since 1988, and has produced the Wosld Series Trophy since 2000. Tilfany also makes trophies for the US. Tennis Association and PGA Tour cham pionships, along with a variety of other sporting TIFFANY FINANCIALS ffaay & Cos US. reall stores account for $0 percent of the companys overall revenue, and the company spends roughly 6 percent ofits revenues on advertising and marketing, It also manufactures 60 percent ofits Jewelry in order to maintain its high-quality stan- dards, while typically outsourcing the non-jewelry items in ts product line, Like many businesses in the US., Tiffany & Co. suffered @ financial downtura during the most recent recession, with US. sales declining in both 2008 and 2009. In 2007 and 2006, the company increased their retail prices due to the rising costs of gold and dia monds, sporting an average sales price of $3,400. ‘With higher pries, the company was able to drast: cally increase their net income, showing a growth of 185 percent from 2006 to 2007. It was not until 2008, that the company began to feel the effects of the reves sion on their profit and growth. In 2009, company sales were down 49 percent fron 2008. although Tiffany & Co. definitely felt the effects of the reces sion in the US, it fared much bewter than many of Ks competitors, with its overall revenue decreasing only 2.7 percent. However, in 2010 the company rebounded: and outperformed the market with a growth of 109 percent. This spurtin growth was mainly ducto the increased prices oftheir jewelry. Since 2010, the ca- ppany has shown strong growth potential for the Faure For instance, the company's US. sales grew 15 percent 0 $L.8 billion by fiscal year-end 2011, and overall net sales rose 18 percent to $36 billion. The company’ net camnings aso increased 19 percent to $439 milion, Although Tiffany took 2 hit from the US, rvces- sion, the company was able to rebound by increasing prices and continuing with their original stratgy af autracting and matkating to the more affluent con sumets It was also able to remain one of tie top hilt- quality players (along with companies tke Bulga snd Cartier) mainly dive (othe fact that all these companies were also impacted by the recession in some manner.EXHIBIT 1 Segment, 2006-200 Financial Performance Summary for Tiffany & Company's U.S, Revenue a ca Cac od Coe) on 2006 31,5608 8.0% $2603 07%, 2007 784.4 ta 343.4 a2 2008 sero 103 2283 35 2009 3,908.2 ~35 2264 -08 2010 1494.5 108 35241 555 aor 1766.2 183 4778 355 Not: EBIT = Earnings Deore nest ae axes ‘Source: binant ibieweé co ibdat hn dendutya THE 4 C’S OF DIAMONDS ‘When it comes to choosing a diamond, there area feve things consumers need to be aware of before entering 8 store or purchasing items online. These characteris. ties are referred to asthe 4 Cs carat color clarity, and cul. Created by the GIA, the Gemological Institute of America, the 4 C's are the international standaed for Uescribing the quality of the diamond. ‘The creation ofthe 4 Ch permitted universal communication when sescribing diamonds and also provided customers with a way of understanding what they wove looking alin jewelry stores, The first carat, refers to the actual weight of| diamond. One carat 1s equal to 200 mlligtas, and ‘ach carat can be subaivided into 10) points, This allows for very precise meacuremients, to the hi ‘redth decimal place. Diamond weights greater than ‘one carat are expressed in carats and devimals sch a 1.25 exrats or one point twenty-five carats, The preater the carat weight, the more expensive the diamond This being sai, two diamonds of the same weight «an have very different values depending on che otier three Cr, The second C, color, actually referstothe diamonds Jack of color. A chemically and structurally perfect di. ‘mond is completely absent of color. Consequently, the clearer the diamond, the greater its value. GIA devel ‘oped 2 color rating system ranked from DZ, with D being colorless, This color rating systein measures the ‘degree of eolorlesness by comparing a diamond under both controlled lighting and viewing conditions to a “master” diamond that has a perfect established color, Color differences can be almost indeterminable using the naked eye; however, a minor difference in color rat- Jing can create a large difference in value, ‘The third C, clarity. refers to the purity of the diamond and its absence af natural inclusions and blemishes. Determining a diamonds clarity ts based fn evaluating the number, size, relief, nature, and Position ofthese defects, as well as how they affect th ‘overall appearanerof the stone. The greater the car of the diamond, the greater its value. The CIA dar ity scale includes six different categories: flawitsencss (FL), no inclusions of blemishes under LO tognil ‘xtion; internally flawiess (22), no inclusions visible tunder 10x magnification; very very slighty inched (VSI and YVS2). inclusions 90 slight that they are Ailfical fora skied grader to see under 10x magni ation; very slightly ictuded (VSI and VS2), inclusions ace clearly visible under Iu magnification, but can be aractetized as minor; slighty included (81 and $2), rns are noticeahle under 10x magnification, and nciuded (1, (2,13), inclusions are obvious under 10x magnification, which may atlect transparency and brilliance, kenttying blemishes and inclusions can be very difficult to see with the naked eye, but make an saormous difference in the value of the diamad, This 's why itis so important for consumers to reeclve a professional appraisal ‘To many people, the fourth C, cut, refers to the shape (round, princess, emerald, pearl) of the dis ‘mond. tn truth, the cut ofthe diamond actualy refers to how the diamonds facets interact with light—in essence, how it sparkles. The cut determines a dias ‘mond final beauty and ultimately its value. In deter mining the cut of a diamond, GIA calculates the Proportions ofthe facets that influence the diamond'sface-up appearance, which lets an expert determine hhow the diamond interacts with light to create the ‘most visually appealing diamond. The brightness of a diamond is also considered, which is how internal and external white light reflects ftom a diamond. Fire is also taken into consideration, which is how the diamond scatters white light into all the colors ofthe rainbow. Scintillation isthe final characteristic consid- cred, which is the amount oF sparkle a diamond pro- dduces andthe pattern of light and datk areas caused by reflections within the diamond. ‘The cut is measured usinga scale of five, {rom excellent to poor. Considering the way the diamond industry is changing, with the ability (o parchase items online and at big-box stores, consumers need to be aware ‘now more than ever what constitutes a good quality diamond, GIA gives guidelines for consunsers on how someone should go about purchasing a diemond: + Choose a jeweler that as training from an accred- ited diploma progeam that can afswer questions clearly and effectively, as well as explain the 4 Cs + The consumer should understand what the 4 Cs + Insist om being presented with a grading report of the chosen diamond, + Protect the purchase by having your diamond appraised and insured, PURCHASING 4 DIAMOND ‘Thanks to the growing posser of the Interne, the way consumers purchase goods is changiag drastically This includes how people buy diamonds. There is a aul tude of retail jeveelers, fine jewelers such ae Tiffany & Co, online jewelers, and big-bex warchouse jewelers. Online stores, such as Blue Nile. have many advantages in the eyes of consumers. Tuying online not only provides convenience, but also allows con sumers the greatest selection of retailers and. mer- chandise. Diamonds can be found in all shapes and sizes at all different price points, allowing the consumer to customize their shopping experience Cline shoppers are also able to easly compare prices from retailer to retailer. Online retailers also offer reasonable return polices in cate the consumer isnot satisfied with thelr original purchase, Though con: sumers are able to purchase diamonds without ever leaving their couch, the dovnside of online buying is the customization factor. If» buyer purchases a dia ‘mond ina sore they are able to have one-on-one dis- cussion about the diamond’ 4 C’s and pick a specific setting fer it. So although online retailers are becom ing more and more popular, many consumers sil feel. ‘more comfortable making such a large purchase at brick-and-mortar jevele People purchase jewelry for many reasons, one of the biggest being its status affect. Jewelry has always denoted wealth, class, and status and is synonymous with affluent individuals. According to {CK magazine, 67 percent ofall jewelry is a planned purchase, mak ing price the most important factor to consumers. More than 50 percent of responders to JCK’s survey reported that product quality, a salesperson’ honesty, the service they received in the store, the stores epu: tation, and the salesperson'sknovledge were the most Important factors when purchasing jewelry Less than 50 percent of respondents ranked store display brand. ‘name, stote location, the recommendation of another shopper, advertising, and store hours as the most ‘important factors. Although many high-end brands exist such as Tiffany & Co, Harry Winston, and David Yurman, many more unbranded stores make up a large chunk of the jewelry market. However, given the magnitude of @ jewelry purchase, a well-known brand can give the consuiner confidence in the purchase and more willingness to purchase jewelry bated upon ‘brand eather than price point For Tiffany & Co, the brand is everything, When Charles Lewis Tiffany permanently took over the company in 1853, he defined the ‘iffany. brand as one of prestige and wealth, making the Tiffany name and the litle Blue box that accompanied it something ‘sat people not only coved, but that many coulda ailord, This set Tiffany & Co, aport from other jew clry companies and elevated them into the upper echelon of fine jewelry and silver. I is easy 40 sce that Tifany takes pride in its brand and the quality of their products. In 2004, Tilfany 8 Co. sued eBay for alleged trademark infringement, trademark dil: tion, and false advertising, given that the majority of Tiffany items on eBay being sold were countercts ‘The courts ruled in eBay's favor, and in 2010 Tiffany appealed to the US. Supreme Goutt, saying that eBay should be held liable for trademark inftingement on Tiffany's brand. However, the Supreme Court rejected Tiffany & Co's appeal and eBay was not held liable for any charges of fraud or trademark infringement When it comes to jewelry, Tiffany believes that costEXHIBIT 2 Jewelry Sales by Income Segment, 2011 ———————— Oe Mojor Market Segrentation (201%) Tota! $90.20 Sout: toes cm. ‘does not matter when you are geting a well-known, high-quality brand that will last lifetime, The Taggest segment of consumers in the jew= flry market tends to be more affluent individvals, ‘According to Exhibit 2, households are the primary market for jowelry purchases, because most jewelry is purchased as 4 gilt, Therefore, sales tend to fluc: twate around holidays such a¢ Cheistmas aad Valen: tine’ Day, Medinm-high-income howscholls make up the largest market segment foe jewelry cetiers at 48 percent of total ndustry reventie. The top 3) petcent of al income-producing households accounis for 70 percent of industry revenue, while the lowest 25 pet cent af income:producing households oly iakes up f percent of industry revenue. The revenues gener: ated by the medium-high-income households showed signs of increasing during the recessionary period, because the recession tended to impact lower-income households more dramatically than higher-income Individuals, Therefore, jewelry retailers tend to aim to sain the most revenue from the top 20 percent of pre tier customers. As far as age, individuals between the ages of 45 and 64 make up the majority of jewelry sales Ipecause they have established disposable incomes. Due fo the aging population, jewelry purchases inthis segment are expected (o increase in the future. The next largest market segment is individuals between the ages of 20 and 30 years old, most likely due to the increased marriage rate in that age segment (il 48% Households in the highest income quartile [Hl 20% Households in the second highest income quartile. il 17% Households inthe thied highest income quartile 1B 6% Households in the lowest Income quartile THE U.S. JEWELRY INDUSTRY The US, jewelry industry is a 30-billion-dollar industry made up of over 56,000 differeot businesses, with an annual growth rateof 3.1 percent, Although the jewelry Industry has had positive growth as of 201, the indus. try tok a hit due co the recession that beg in 2006 The effects of the recession on the jewelry industry began to show in 2008 when baxury spending started todrop. As household eammings and expenetutes tight ‘ned, the sale of luxury goods declined as well. This, drop in cousunier expenditures caused the sales cev= saue ofthe industy to deeline at an estimated annual rate of 27 percent over five years fos 2096 10 2011 The jewelry industey saw a slow recovery fol lowing the economic daventurn in 2008. 2010, the annual growth rave declined 1.7 percent. However, some larger Companies like Signet and Tiffany & Co, proved to be outliers and shawed positive sales groseth jn 2010, Due to the strong brands and image ratings of the larger fine jewelry retailers, dey were able to weather the effects of the recession and became led. ing indicators of recovery in the industry In addition to the reduction in consumer spend Ing the jewelry industry was also affected by the rise ing price of gokd. Exhibit 3 displays the effects that the increased price of gold had on the overall jewelry industry revenue. The price of gold increased from $604.71 per ounce in 2006 w $1564.91 per vunce inEXHIBIT 3 The Effects of Changes in Gold Prices on U.S. Jewelry Industry Revenues, Actual and Projected, 2003-2017 ——_— Industry Revenue — wonange we 0 oF oo 8 OT + Source tp enaibiwerdicom Boat ndunrvutnuiessnmonsionsipsfndid 07S 2011. The increased cost of gold pushed up a jewelers ‘overhead costs, which exused their profit wo deop by 511 pereent from 200% 16 2011. With Ure increased price of gold, it bas become umperatise for jevelry Mores to manage their purchasing and overhead costs Parehases account for over 50 percent of a fens cost structure, Many stores had to employ budget-cutting measures in order t remain profitable. One popular tactic used by jewelry companies was to cut wages. Industey wages dropped fiom $5.2 billion in 2006 {$46 billion in 2011. Firms also suffered from defsult Toans feo borrowers, which led wo sunk costs and increased debt for some firms. Harsh credit conditions fs. result of the recession even caused some compa ties to file for bankruptey, such as Friedmaris Jewel fers, which filed for bankruptcy in 2008, Some luckier firms were able to close retail locations in order to seve om costs and avoid bankruptcy. This eaused a large decrease in the number of operating fms in the US. during the recessionary period. For example, the numberof rt lems in Une US. in 2007 was 62,005, ‘which then dropped to 56,007 by 2011 Jeweley companies also began to face increased competition fram aon-jewelry outlets, such 2s Supercenters and online retailers. These companies threatened the profits of firms like Tiffany & Co. ‘because they offered lover prices and one-stop shop- ping for consumers. Threats from these competitors tended to be more intense and have 9 greater effect fon the lower-alue product segments. This increased Competition fom non-traditional jewelry retalers has ‘Caused size, sles growth, and profitability to slow. “Te latest recession bas also taken it tol om the industry, bat estimated revenue growth is stil pre dicted t0 be 3.1 percent per year through 2016. The number of real stores is also expected to Increase through 2016 te 70013 stores nationwide. Although the industry i in the mature stage, the forecasted growih potential and the increasing consumer sen= ent wl keep this industry in working onder. Not Just Jewelry The jewdlry industry is made up of a plethora of products, and has evolved from gemstones and dis fonds th expanded product lines that include every- thing from accessories o luggage. However, the most ‘common jewelry sold i stil diamonds and gold ‘According te the product segmentation in Exhibit 4, Giamond jewelry makes up the largest amount of jew tlty products, accounting for 48 percent of industry fevenue This s most likely due to the increasing mar ‘age rate, although during the recessionary period the Inarriag® rate dropped slightly as couples postponed ‘weddings due t© lagging disposable incomes. The Uiamond segment of the industry includes bracelets rings. necklaces, and so on in which diamonds make tip 30 pereent of the Ktems value. Although the dis posable income hae decreased since the recession, the Siamond segment has slightly inereased due to the ‘overall rein personal wealth, Gold makes up the second-largest segment of the product market. Many consumers purchase gold itenis because ofthe investment value since the price of gold has shown steady increases. ‘The gold product segment is made up ofall gold jevelry items, while dismonss, ‘gems, and other items constitute les than 50 percent fi the final items value, Although gold makes up a lange revenue segment for the industry, there has been 1 switch in consumer purchasing trends, For example, ‘over the years there has been a shift from gol rings to ‘more favorable platinum rings. Tis has caused yellow gold talose market shae due tothe fact that gold jew- Elry has become less desirable for consumers, Watches ‘make up the next largest product segment af 13.9 pet ent ofthe industry revenie, However, the demand for watches sin decline due tothe increased numberEXHIBIT 4 U.S. J elry Industry Sales, by Product S Products and Services Segmentation (2011) [2% Diamond jewelry 6.3% Other morchandise (Tisai sich: 115.7% Loose gemstones Total $30.26 ‘of sinariphones and PDAs that have built-in docks. Besides silver and gold, Jewelry stores offer a wie variety of gemstones, pearls, silverware and tabieware, and otlier accessories, ranging (rom eyewear to lug. ‘gaze. depending on the size ofthe retailer. COMPETITION ‘The US. jewelry industry 1s mainly concentrated in the Southeast and Mid-Ailantic regions, which account for 45 pereen of tal industry sales: The con ssion is highly dependent on population as well as per capita income. The higher the population and ber capita income. the more concentrated the seta ‘merchants i that particular aren. The four largest players in the jewelry indus: ley have 20 percent of the toal jewelry market. The jewelry industry is highly fragmented with no single ‘ealer owning in excess of 10 percent ofthe total mar kel. This is due to the high volume of retail jewelry stores and the vast availablity of jewelry products and merchants. Therefore, over time, concentration in the jewelry industry has steadily increased and Is expected to increase through 2016. With low bart. rs to eniry, the jewelry indusry is highly compeli- tive and constantly growing. Due to the discretionary nature of jewelry purchases, the economy and dispos. able income of consumers greaty influence the com: petitive landseape in the jewelry industry, Jewelry companies try to create stores if high- traffic retail areas that are near the more affluent areas incliding diamonds and 106% Gold jowetry colored gemstones Blase oer [9% Peart jowoiry ‘gemstone jewelry [1] 1.7% Platinum jewelry of a city. he depth of the product line 4 company offers can differentiate them from other competitors, and a signature ademark and reputable hrand name, such as Tiffany & Co's blue box, ean give a company 2 leg up on its competition. With the resent revession pice has become a more important factor than ews, hich has increased the pressute on big-box stoes and supercenters that carry a large selection of low: priced level. Signet Group, PLC oe Signet Group Is one of the largest kowelry retail ers in the world with a 9.7 percent market share in the industry: Originally founded in the United Kingdon in 1862, the Signct Giroup ope wel Fla segment through its Kay Jewelers locaijons, as well as Jared the Galleria of Jewelry. The company currently hhas move than 1,300 stores in the US. and the US accounts for more than 75 percent of its overall sales, Signet buil its empire on supech customer servic, a value-driven product line, strategic marketing plans, and onsite customer financing, Kay Jewelers is a subset of Signet based in mall locations and targets houscholds thet have s median annual income between $35,000 and $100,000, Due to the recession in 2006, Kay was forced to lower ts prices in order to cater to more walue-conscious cus. lomers. ‘the division also enaneed ite web presence to help boost sales and gain new customers. I ada tion, Signet operates other niall retail stores in oder (omeet a wide range of price points for customersEXHIBITS Financial Summary for Signet Group's U.S. Operations, 2006-200 Year 2008 s2.982.1 149% ocr 27057 20 2008 25108 39 2009 240d oa 2010 27482 80 ott 29293 a7 oy (6 milion) Cha $9287, 189% 2522 197 260.7 Neo 2248 No 3427 927 4237 26 Source hn iho. camibdots un edufnduteyes ao Jared the Galleria of Jewelry is the more higher: ‘end US. retail segment of Signet and targets house holds with a median annual income between $50,000 and $150.000, Jared is an of-mall retaler that has @ higher price point than Kay Jewelers at an average price of $713. Jared Is more focused on providing cus tomer service, knowledge about the products, as well asthe onsite design and repair of jewelry. Like many US. jewelers, Signet Group felt the effects of the recent recession. The company had Uccreases in revenue in 2008 and 2009, as shown in Exhibit 5; however, Ms revenue has increased since then, Pri tothe recession, bath Kay and fared per formed well, with increasing revenues and more store locations. Signet suffered the most in 2008 and 2909, with sales dropping 69 perceat in 2008 alone. In 20nY, the company weathered the storm by shifting its focus ento its more value-driver brand, Kay, The recession forced the company to climinate new store openings, cut advertising budgets, and lay off work crs. fn 2040, Signet showed signs of improving growth (a percent) due to targeted marketing strategies and the lowering af prices in its mall-based stores. Kay was also able to reach ut to the “penny pinching” consumer through their popular and inexpensive chharin bracelet line. As the economy improved. the company continued to show positive growth through, 2011, and had plans to continue the expansion of their Jared stove locations Bulgari S.p.A Bulgari is one of the top luxury goods and jewelry retailers in the world. The Bulgari Group has 41 com- panies in 21 different countries, 295 retal stores, land over 3,800 employees worldwide. The company ‘offers many products, including jewelry, watches, accessories, perfumes, skin care products, and leather foods, and even has aline of hotels Tm 1884, a descendant of Greek silversmiths, Sotirio Bulgari opened his ist jewelry store in Rome, Italy, where he began seling fine jewelry and antiqui- ties, ln 1905, with the help ofhis two sons Gonstantino and Georgio, he opened up what today is the flagship store in Via Condotti, Rome. In the early 20th century. Bulgar’ two sons began to take an interest in precious stones, gems, jewelry, and watches. With much enthu siaim for ths jewelry business, the two sons gradu ally took over their fther's management postion in the company. They then introduced a new, unigue Greco-Roman style of jewelry 10 the store’ product line. Te exquisite jewelry caught the eye of many alfluent and fornous individuals, and by the 1950s and 1960s got Bulgaei noticed as 3 Hine luxury jestley retailer, With the fast grovth of the brand, Bulgar was soon able to expan imernationally, pening stores in Neve York, Geneva, Paris, and Monte Carlo in the 970s. In 1977, Bulgar!’s’ most famous watc was introdeced, Sulgari-Bulgan, which remains the com paniys best-selling watch today. With the popular hry of the company’s watches, Bulgari founded the ‘company’s watch division in the early 1980s: Bulgari ‘Time in Switzerland, In 1995, Bulgari expanded its product line and began offering fragrances along vith their fine jewelry. The corapany went public in 1995 and was listed on the ftalian Stock Exchange and the international SEAQ of London. In 1994, it expanded its product line a a luxury goods retailer further with the Introduction of silk scarves. This was followed later in the decade with silk ties for men, eyewear, leather goods, and a multitude of other accessories. In 1997, in keeping with expanding the companys prestigious brand name, Bulgari joined with Ferragamo to ourket and distribute Ferragamoand Ungaro perfumes. The following year, Bulgari entered into the housewares market, partnering with Rosenthal to sell fine china, erystal, tableware, and stemware, In the late 1990s and early 2000s, Bulgari contin ued expanding their product line and the company 8 whole. In 2000, the company licensed its brand ‘name to luggage and accessories for Cadillacs retro car, the Ima}. Shortly thereafter, Bulgari bought three Sirss watchmaking units from ‘The Hour Glass Lid ‘Then in 2001 the company signed a license agree- ‘ment with Marriot International to create a chain of Bulgai-branded hotels. The following year it opened its frst store in Russia, and in 2007 opened its larg fst store ever, an I-story building in Tokyo. This ‘was followed by its largest store in Eutupe, opened in Paris, France. In 2010, Bulgari signed a contract with ‘engdei Holdings in China that will expand the com pany’ watch lines there. In 2011, Bulgari was taken over by the French luxury goods company LVMH (Louis Vuitton Moet Hennesy), ‘Very much lke Tiffany & Co, Bulgari pridesitself ‘on the superior quality of its products and customer service. Throughout all of the company’s expansion ventures, i has still been able to maintain is sophis- ticated and luxurious brand name. Bulgarts main business goal today isto achieve full customie satisfac. ion through excellence in every aspect of their bus ness structure. As the company slales: “Excellence 0 Bulgari means the perfect balance between the high. ‘st quality products and impeccable service wor wide" From every aspect of the business, whether it be design, production, or distribution, Bulgari makes ia priority o instill the highest quality standards nd specifications in cach process, resulting én only the finest quality goods Blue Nile, Inc. Founded in 1999, Blue Nile is now the largest online retailer of diamonds and fine jewelry. Based in Seattle, Washington, this online retailer competes with ‘the most distinguished brands in he business, such as, Tiffany & Co, Cartier and many more. The company offers variety of luxury jewelry items, includingloose diamonds, settings, engagernent rings, gold, silver and platinum jewelry set with a variety of gemstones and pearls. Blue Nile has made choosing a diamond or 4 Piece of jewelry a completely different, and for many, ‘4 more convenient experiesie, Being able to browse through thousands of diamonds and compare the 4 Ci, settings. and prices all with the lick ofa button or swipe ofa finget, is what sets this company apart from their brick-and-mortar competitors. Many ¢on- ‘sumers find this terifying when making such expen- sive purchases, but Bue Nile pride itself en educating first-time buyers and giving consumers the knowl edge they need to make a well-educated purchase. In fact Blue Niles business model is built around the notion that “choosing an engagement ring doesnt have to be complicated” It offers over 60,000 gemologist-certified diamonds, providing all of the amenities that a brick-and-mortar retailer offers, such as sizing, gift wrapping, financing, insurance, and appraisals. The company has based its merchandis ing strategy on a “just-in-time” method that allows the e-tailer to save on inventory costs by advertising the diamonds on their website, and then purchasing them once the customer has actually made the order online Blue Nile recently expanded its website o include ‘mobile devices. In 2010, the company launched a ‘mobile website for users that i a scaled-down version ‘of thei main website, but that stil enables consumers lo browse thousands of diamonds and jewelry from anywhere they choose. This lets customers enter a brick-and-mortar firm like Tiffany &Co, and compare their prices to Blue Niles while standing in the store ‘he company reporied in 2011 that approximately 20 percent of their customers were using the mobile site. In 201%, the mobile ste proved to have paid off when Biue Nile sold a $300,000 diaraond through the Phone application Like most jewelers, lke Nie sulfered from the secession. Howe. the company did have a slight Increase in sales OF W0 percent. roan 2009 to 2014, with international sales increasing 30 percent. With this lauge increase in international sales, swell ws the fact that half the venelds diamonds lie outside US. bor ders, Blue Nile has made it a company focus to con: ‘une expanding internationally. The companiy also plans to vedirect its strategy and focus on non-bridal jeviclry moving forward. According to Exhibit 6 the ‘number of formal weddings in the US. is in decline ‘This is most likely an effect of the recession, as well at changing societal belieS about marriage. Couples ate also choosing to get macried later in life, which has an impact on whether or not they have a wedding or Dbuy an engagement ring. Although two-thirds of Blac [Nile’ sales come from engagement rings, due to the declining sales margins of the item the company has chosen to focus their strategy on other forms of jew. clry, sch a 10EXHIBIT 6 Number of Weddings in the United States, 2001-2010 —— ua) $e _ETETEOE 3.0m: 23M 29M 2am 23M 22M 90m, 2 20. & 2 2 10 ‘2001 2002 2008 2004 2005 2008 2007 2008 2009 010 IV change 2% 2% 2% 1% 2% 0% =H —A% —5 + Sou: hips shaver semflowalas A Costco Founded in 1983 ip Seale, Washington, Costco snow Ae langest membership warehouse chain i the United States with sales of over $87 billion in 2011. Costeo provides customers with a ene-stop discounted shop. ping experience. Ihe companys product line ranges from everyday grocery and bakery stems to electcon ies and treascre hunt items, Gut like maay discount ‘tails and warehouse stores, the company also has a wide range of jewelry and diamonds for consumers to choose from. In 2011, Costeo sold 103,000 carats of diamonds, with their largest diamond purchase boeing a 3.43-carat pink diamoid ring worth $255,000, ‘Among their other large diamond purchases was a pair of 656-carat diamond earings priced a $67,900, a5 well as a 3.07-carat round diamond ring that sold for $67:300. Although consuiners must puschase a membership to reap the benefits of Costco, upfront savings on large purchases such as diamonds and elec- tronics seems tobe worth the yearly fee Many big-box stores seem to be gaining market share on the diamond industry every yeat. With the cever-recovering economy, the definition of value has changed for many consumers. Why buy a one- (0 lweo-earat diamond ring at # high-end retailer such, onsessaeiadlde e206 BONES 4ee 4367s Dy 28 Tiffany or Cartier, when the consumer can go to Walmart or Costco und get a throe- to four-carat dia ‘ond ring ofthe same quality fr the same pri ‘Even though companies tke Tiffany are some ‘of the most well-known and well-respected compa nies in the industry, the discount powerhouse rts ‘Walmart has the Targest marketshare in the diamond dustry. "This is anos likey due to their everyday love prices and one-stop-shopping atunosphere. [veto the highly fragmented industry, the top 20 jewelry ret crs only make up 28.1 percent of the total market share, as seen in Exhibit 7. With this smali percentage, big-box stores have the opportunity to take advantage of recessionary times, further penetrate the industey, and continue to take market share away from designer retailers such as Tiffany & Co, DOES BRAND REALLY MATTER? In the mid-2000s, as the economy recovered from a mild recession, consumers began making more dis cerning purchases and holding on to their dspos- able income. With more penny-pinching consumers in the marketplace, a new version of retail jewelry nEXHIBIT 7 Percentage of Total Re! il Jewelry Sales in the United States, by Major Retailer, 20n 80 80 40 2 301.58 US Joweryatal Source plies sharoldo com/dsenonds MK fiat ‘emerged. People became less discerning about where they bought their jewelry and more concerned about betting the biggest bang for thelr buck. This new pli nomenon made retailers start asking, “Does brand teally mater anymore? Or is 1 ail about price and value Consuinets began to realize that they were pay- ing a premium simply for the brad name atached to exch jewelry tem, In hard economic tines, the pride that comes from a purchase with a fine retail jeweler ‘may not be as important as the actual quality and size of the dismond. In 2006, ABC's Good Morning, ‘America did a study on the differences in price and ‘quality between a diamond from Tillany & Co. ver susa diamond from Costco, Although Costco did not have the high-quality customer service that a retalet like Tiffany has, Costcos prices far undercut thoe of luxury jeweler. Where Tiffany & Co’ jewelry started a $1,200, Costco’ started as low a8 $500, ranging al the way up 10 $23,000. Although shopping for jew- clry and diamonds anidst groceries and patio fn ture may not be the ideal atmosphere for consumers, ‘many people are willing to sacrifice the luxurious anabiance and service of a high-end retall store for a lower-priced, larger-carat diamond, ABC} research found tinat a nearly Qawlese, one-carat diamond with 2 color grade of F (colorless) was $16,600, including the famous Tiffany 8 Co. engagement siting. ‘he gemologist hired by ABC also noted thal a dismond ‘of the saine exact quality—without the prestigious brand name—cost approximately $10,500; This pate # value of $6,100 on the Tiffany brand name and litle blue box alone. The same consultant then ventured to Costco and purchased a round diamond, just over 4 carat in size with a color grade of HI (nesrly color less) and paid $6,600, which was $10,000 less than an almost identical diamond at Tiffeny & Co, Cer tainly, some may say that the Tiffany brand name is ‘worth the extra $6,000, and many consumers rake the choice every day 16 buy a name-brand product versus a no-name one, whether it be jeans, hindbags, or jewelry due to quality concerns ot simply to have the logo stitched on their pocket or hanging from their arm, But will the benefits of a designer name like Tiffany & Co, continue to be as promtinent as it 12