Tifany and Co Case study Case Agenda
Is blue box packing a great strategy? Given that spending in the luxury retail market market has demonstrated resilience during and post recessionary recessionary times, how can Tifany continue to grow? Will it be able to maintain a prominent brand in future?
Company History Timeline 18!" #ounded in $e% &ork &ork by 'harles (e%is Ti)any and *ohn #+ #+ &oung" &oung" The lue ox introduced 1-1./1-0.s" 2! th street and #ifth 3venue #lagship store 4..." Ti)any and 'o+ foundation established They sell 5e%elry, 5e%elry, timepieces, silver%are silver%are etc using their key key stores in high pro6le locations+ -.7 of their revenue is from 5e%elry+ ut of -.7, 2!7 revenue is generated from their a)ordable a)ordable line collection+
PORTER’S V FORCES
'ompetitive 9ivalry a: ;arket is fragmented %ith Ti)any having the second largest market share after
ven the chain stores, like 'ostco is posing huge competition not because of cheap cost and good uality but also good return policy+ 'ustomers can get bigger carat diamonds of next to similar uality at half a price@ the only di)erence is the brand and bi big blue box packaging+
uyer =o%er a: uyers have high disposable income b: They feel connected %ith the brand c: 3ble to choose from retailers and easily s%itch, so emphasis on experience
Threat of
arriers to >ntry a: Aigh cost of capital to start a luxury 5e%elry business b: 'onsumers likely to shop from a brand that they kno%
Analysis o external ators
=olitical" Government plays a key role in mining practices, so there is an ease in getting ra% material at cheap prices+
>conomic #actors" a: 3sian markets are gro%ing extensively especially 'hina+ It is the fastest gro%ing and second largest luxury market in the %orld+ b: 3merica is the largest diamond market follo%ed by 'hina+
Technology" 3ll 5e%elry designers use 'omputer 3ided Besign
Analysis o !nternal ators" Resoures
Intangibles" rand name and image i+e+ high uality, sophisticated, classic ;oreover their '<9 activities add to their image+
Auman 'apital" a: lsa =eretti, #rank Gehry and =aloma =icasso+
Tangibles" a: b: c: d:
Inventory 9eal >state =restigious store locations ;etal and gemstone mines+
Core Competenies and Competiti#e Ad#antage 'ore 'ompetencies a: b: c: d: e: f:
Besign and innovation ;arketing and excellence rand development 'ustomer service Cuality and craftsmanship Bistribution
'ompetitive 3dvantage a: =roduct di)erentiation b: rand loyalty
c: nline retail presence
SWOT ANAYLYSIS OF TIFFANY Strengt$s Majority in-house prouction DE.7 production and !.7 diamonds sourced directly from mines: Strong !ran in the high"y #rag$ente $ar%et D4+17 market in the real 5e%elry market and ranks 4 nd in market share: Strong diret selling $annels D41+! ; catalogues in the F< in 4..E and .+!; sales via telephone, internet or F< mail: &roa oferings D3bout ,2.. products/5e%elry, timepieces, sterling silver%are, china, crystal, fragrances, stationary, precious and semi/ precious stones, titanium etc+: 'S( initiati)es Dristol ay =rotection =ledge to preserve salmon 6shery and surrounding %ilderness and uses 1..7 recyclable paper and blue bag etc:
%ea&nesses No *ro$otion $oe" D3verage engagement price range 1.,... three times the market average, never o)ers any discounts or promotions, etc+: Increase in e!t an interest pay$ents D0,.. ; long term debt since Bec 4..8, increase in interest expense to 4E; from 0+4; in 4..8:
Opportunities
T$reats
+cono$ic (eco)ery D*e%elry market gro% by 07, even in economic troubles market %as 08 billion in F<: &ria" jewe"ry D4..-/4.42, 3bout 8.; people are reaching marriageable age: The Asian Factor DGro%ing high net %orth individuals in 3sia =aci6c+ 4+- ; millionaires in $3, 4+8; in >F and 4+0; in 3sia =aci6c: S$a"" Store For$at D#rom 12,... s ft, attain high productivity of 1,... per s ft: Tifany,s #or Men D;ens toiletries segment is 4+0 and gro%ing at 7:
Margin *ressurie D*e%elry price inHation at producer level by E+!7 and retail price decline by .+07 due to economic conditions, thus shrinking pro6t margin for 5e%elry retailers: 'ounter#eit cri$e hurting !ran i$age D3ustralian 'ustoms and order =rotection
CO'PET!TOR S%OT &L0+ NIL+
&0L1A(I
(ey Suess Fators and Core Capa)ilities Jey
Introduction and execution of e/commerce Fnderstand economic conditions and reacting 3spects of consumer spending
'ore 'apabilities
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3bility to select and display high/end 5e%elry to create a sustainable advantage 'onstantly strive to%ards innovation 'ommitment to the highest standards for social and environmental responsibility
Cost Strategy There are three types of cost strategy" K'ost (eadership KBi)erentiation
K#ocus The main cost in the 5e%elry industry, and thus experienced by Ti)any and 'o+ is the cost of ra% materials" diamonds, gold, platinum etc+ LTi)anys o)ers a broad product range to several types of markets+ LTheir main focus is in the 6ne 5e%elry and bridal markets+ LThe signature Mblue boxN %hich Ti)anys is kno%n for di)erentiates it from all other companies+ LAo%ever, Ti)anys is more focused on separate markets and target groups %ithin them suggesting a more focused cost strategy+ LTi)anys main source of capital is through external investors, not debt 6nancing L3s previously stated, the main cost is the cost of ra% materials+ KThe stronghold over diamonds by companies like Beeers and 3ber 'orp+ Aave forced Ti)anys into long term contracts for ra% materials purchasing+ KThis reliance on diamond is also placed on Ti)anys competitors LTi)anys used the (I# method for inventory costing for years, but recently s%itched to the average cost method+ L;ost of the 5e%elry industry, and Ti)anys main competitors use #I# instead+ KThis inHates competitor 6nancial statements by portraying a smaller number for inventory expenses
Strategi !ssues and Pro)lems
LThe main strategic issues that Ti)any and 'o+ must consider involves" K The state of the economy K
3nd %hether they should take a short/term or long/term approach to stabiliing their current condition+
Realisti Options*C$oies
There are fe% basic options" ption 1" roaden xclusivity ption " >xpand distribution channels ption 0" >xpand into >urope and 3sia
Option 23 &roaen Scope Through Lower-*rice /ewe"ry LTi)any O 'o+ is kno%n for being innovative, and this %ould be a good opportunity to di)erentiate themselves from their high/end discounting competitors+ LBiscounting a price is never an option for Ti)anys LTi)anys could introduce more high uality, yet appropriately priced, lines of 5e%elry to accommodate this volatile time period+ LThis option focuses on stimulating short/term sales to stabilie the company during the recession+ 3dvantages • • •
Increases sales and market share =reserves the missing segment of aspirational buyers
Bisadvantages • • • •
nly a short/term 6x ;ay compromise the integrity of the brand 'ould drive a%ay the upper/class consumers 'reates long/term pro6t loss
Option 43 Focus on &ran I$age an +5c"usi)ity LInstead of broadening their scope, this option proclaims that Ti)anys should focus on building and maintaining their high/end identity+ LThis can be done through having consistent product assortments that are symbols of uality, prestige, and value+ LThis options focuses on maintaining long/term success and pro6tability+ Thus, it reuires riding out the recession+ 3dvantages" • • •
'onsistent %ith the brand image ;aintains long/term success Fpholds the companys MexclusiveN reputation
Bisadvantages" • •
9isk riding out the recession
Option 6- Se"" through istri!ution channe"s 3dvantages •
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3bility to access broader market base through increased availability of Ti)any and 'o+ products 9etain high/end brand exclusivity by sharing store space %ith established, recognied, high/end retailers+ 3llo% for great accessibility and marketing of lo%er/priced Ti)any products through expanded distribution channels
Bisadvantages • • •
9isk of perceived brand dilution from top/tier Ti)any consumers Increased cost of operations to expand distribution net%ork+ 'ost of contract %ith department stores
Option 7- +5pan in Asia an +urope 3dvantages
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Bemand 'ondition in >urope K =restige of fashionPimagePdesigners #ill out Ti)anys demand curve/3bsorb %ider range of diamond inventory/i+e+, supply of di)erent carat sies 6lled 9elated and urope Delgium: >urope itself is a huge market De+g+, 17 of ra% diamond market is 4.7 of 'hinas market: y 4.1E 3sia/=aci6c gro%th is anticipated at 427 y 4.1E >uropes anticipated gro%th is only -7 ho%ever, this is out%eighed %ith the relative sie of the >uropean market+ 3verage luxury consumer age 'hina is 4. years younger/ huge potential market+
Bisadvantages •
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;any countries trends indicate a lo%er tendency to buy engagement rings %ith diamonds/only the bands are purchased #urther expansion in 3sian market can increase counterfeiting, %hich can lead to brand dilution+
F!+A, THO-.HTS
To ensure pro6tability, Ti)anys top management must create a strategy to gro% %ith this market trend" customers are spending more money in the luxury retail market+ It should go %ith a strategy mix %here it focuses on brand image and broaden its market share to an extent, by lo% K medium priced 5e%elry and via distribution channels+ ;oreover in near future it should plan to gro% its business by focusing on opening ne% stores in 3sia and >urope+
!'P,E'E+TAT!O+ STRATE./
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Betermine best locations %ithin 3sia/=aci6c by income levels
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Besign should be aligned %ith local culture D'hinese and Indian designs: =romotion through high end launch parties =romotion through international and local celebrities+
