TIffany and Co. Competitive Analysis Presentation

8/15/2019 TIffany and Co. Competitive Analysis Presentation

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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 andJohn F. Young founded Tiffany and Young, a storededicated to selling stationery and costume jewelry.

• In 1845, began selling “real” jewelry.

• It was not until 1853 that the store became known asTiffany and Company.

• During the late 1940s it added silverware, timepieces,perfumes, and other luxury items.

• Throughout history they have managed to solidify theirposition as the leading competitor in the jewelryindustry 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-termintegrity 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.





Current Strategy

• Launching new, lower-priced products to takeadvantage of the growing number of consumersdemanding quality goods at lower prices.

• Target: Middle income - introduce products with pricesranging 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 thoughits brand has become more affordable.

• Has created mass amounts of short term revenue, butin the long run it could be detrimental to the oncetimeless, exclusive brand.



Accounting/Financial Strategy



Accounting Criteria

• Tiffany and Co. is consistently conservative in its financial andaccounting practices.

• As required by U.S. law, Tiffany’s employs GAAP accounting, butalso 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-linedepreciation 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 hasbeen 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 Pension Accounting

• Pension accounting practices in the U.S. has beenrecently scrutinized.

• In order for Tiffany and Co. to more accurately estimatepension 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 ofpension expenses. – This method involves the use of a certified actuary to

estimate and attest to the estimated pension expense tobe realized by a company, and is regarded to be the mostaccurate and reliable.



Net Sales/ Net Receivables



Net Sales/ Net Receivable Explained

• Taking sales and dividing them by A/R finds the A/RTurnover Ratio. This gives the interested parties a morevisible picture of how many sales are made on accountwhile the rest are in cash. A higher ratio is ideal

because it shows a company that receives cash insteadof waiting on accounts to be realized. Tiffany’s ratio isunderperforming compared to its competitors. Thisdoes not work in Tiffany’s favor because it shows a lowcash 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 inor not receiving payment of accounts as quickly asexpected.



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 byZale’s and Tiffany’s continues to maintain

strong numbers in the twenties and teens

which portray high profit returns from themoney invested by stockholders. This makes

Tiffany’s attractive for investors.



Gross Margin



Gross Margin Explained

• Gross margin is a useful tool for examining acompany’s operating efficiency. Tiffany’s has avery strong and competitively high gross marginportraying that Tiffany’s is more capable of

profiting off of each sale made than both itscompetitors and the industry as a whole.However, this added margin is most likely theresult of price mark-ups. This is not necessarily a

bad thing since most of the customers of Tiffany’sare willing to pay the extra price for the Tiffany’sbrand 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 offeringsStrong balance sheet

Decline in cash flows

Lower returns and profit margins

Struggling performance inJapanese market

Opportunities Threats

Expansion in retail outlets

Increasing online salesGrowth in men’s market

New business venture

Counterfeit goods

Increasing rental rates in USSlowdown of US economy



Competitor SWOT


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


Expansion in retail storesIncreasing online sales

Increasing brand recognition

Counterfeit goodsSlowdown of US economy


Strong direct selling strategyBroad offerings

Strong balance sheet

Decline in cash flowsLower returns and profit margins


Expansion in retail outlets

Increasing online sales

Increasing brand recognition

Counterfeit goods

Slowdown of US economy

Blue Nile

Bulgari



Key Success Factors and Core

Capabilities• Key Success Factors

– Introduction and execution of e-commerce

– Understand economic conditions and reacting

– Aspects of consumer spending

• Core Capabilities – Ability to select and display high-end jewelry to create a sustainable

advantage

– Constantly strive towards innovation

– Commitment to the highest standards for

social and environmental responsibility

Overlap of Tiffany’s 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 PerettiPaula 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.





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 separatemarkets and target groups within them

suggesting a more focused cost strategy.





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 inventoryexpenses





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 competitorsand 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 equityfinancing 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.





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 addressthese 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 improveddecision-making by addressing all issues and giving fullconsideration of outcomes and their implications.

• This will involve evaluating the current condition of the

company’s external environment, consumerenvironment, and internal environment.



The External Environment

• The economy has been of increasing concern as it hascontinued to decline.

• Tiffany & Co.’s sales have continued to decline, and now, as

of the fourth quarter of 2009, their net income hasplummeted 76 percent.

• However, Tiffany’s has mentioned “robust sales in mostglobal markets offset the sales decline”

• Another factor of the external environment is the inflationon 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 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 – 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 optionproclaims that Tiffany’s should focus on building andmaintaining their high-end identity.

•This can be done through having consistent productassortments that are symbols of quality, prestige, andvalue.

•

This options focuses on maintaining long-term successand profitability. Thus, it requires riding out therecession.



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 forthe company.

• Recent results with Tiffany & Co have proven that

lower-priced products compromise the integrity oftheir brand. ~ silver charm bracelet

• These lower priced products are likely to alienate the

jewelry firm’s older, wealthier, and more conservativeclientele. In the end, it could possibly forever damageTiffany’s timeless reputation and image for luxury.



Strategy• Our strategy for Tiffany and Co. came

down to one key factor that needs to bemaintained: 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 forquality, 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 andadvertising strategies.

• To help assist the performance of

Tiffany’s brand image, Tiffany shouldcontinue 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 toemphasize their original vision and grow their timeless,legendary brand image.

•A strong balance sheet, “real” assets, a visible globalgrowth story, and long term market shareopportunities further support this view.

•

Even with the current economic crisis, it is safe to saythat the Tiffany and Co. will not fade away.



Tiffany: Radiant Brilliance

After all, diamonds will always be a girl’s best friend.

Documents

TIffany and Co. Competitive Analysis Presentation