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Tiffany and Co.

Competitive
Analysis
Team 6
Jessica Aragon
Raynee Bradley
John Cayo
Cole Naylor
Jessica Wilson
Brandy Wolfe

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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 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. 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


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 mens 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 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

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 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 shortterm 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

Option 1: Broaden Scope Through LowerPriced 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 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

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 longterm 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.

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 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.