Tiffany and Co. Competitive Analysis

Team 6

Jessica AragonRaynee BradleyJohn CayoCole NaylorJessica WilsonBrandy Wolfe

Click Me?

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 BoxOne 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 StrategyLaunching 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 $250Affordable 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 CriteriaTiffany 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 FlexibilityThe 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 accountingThe switch from LIFO to Average Cost inflated profits by lowering inventory expenses.

Flexibility in Pension AccountingPension 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

Chart1

0164.631.2

0108.251.7

11.3048237112.441.8

10.9272.913.8

11.07124.10

Tifafny's

Blue Nile

DGSE

Sheet1

Tifafny'sBlue NileDGSE

2004-164.631.2

2005-108.251.7

200611.3048237112.441.8

200710.9272.913.8

200811.07124.1-

To resize chart data range, drag lower right corner of range.

Net Sales/ Net Receivable ExplainedTaking 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

Chart1

22.6510.121.9611.4

17.6916.1913.1213.7

16.92-5.214.7214.8

16.1115.485.5718.2

19.213.879.9918

Tiffany's

Zale's

Finlay

Industry

Sheet1

Tiffany'sZale'sFinlayIndustry

200122.6510.121.9611.4

200217.6916.1913.1213.7

200316.92-5.214.7214.8

200416.1115.485.5718.2

200519.213.879.9918

To resize chart data range, drag lower right corner of range.

ROE ExplainedTiffany 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

Chart1

56.865050.434.9

58.7350.649.735.8

59.2750.251.636.2

57.8751.351.239.7

56.0651.451.840

Tiffany's

Zale's

Finlay

Industry

Sheet1

Tiffany'sZale'sFinlayIndustry

200156.865050.434.9

200258.7350.649.735.8

200359.2750.251.636.2

200457.8751.351.239.7

200556.0651.451.840

To resize chart data range, drag lower right corner of range.

Gross Margin ExplainedGross 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 & AdvertisingTiffany BlueRobins egg blue boxTarget marketUpper-middle to high income consumersAdvertisementsPop cultureSomething 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

StrengthsWeaknessesStrong direct selling strategyStrong brand nameBroad offeringsStrong balance sheetDecline in cash flowsLower returns and profit marginsStruggling performance in Japanese marketOpportunitiesThreatsExpansion in retail outletsIncreasing online salesGrowth in mens marketNew business ventureCounterfeit goodsIncreasing rental rates in USSlowdown of US economy

Competitor SWOTBlue NileBulgari

StrengthsWeaknessesStrong direct selling strategyStrong balance sheetGrowth of E-commerceDecline in cash flowsLower return and profit marginsLimited offeringsLack of physical storesOpportunities ThreatsExpansion in retail storesIncreasing online salesIncreasing brand recognitionCounterfeit goodsSlowdown of US economy

StrengthsWeaknessesStrong direct selling strategyBroad offeringsStrong balance sheetDecline in cash flowsLower returns and profit marginsOpportunitiesThreatsExpansion in retail outletsIncreasing online salesIncreasing brand recognitionCounterfeit goodsSlowdown of US economy

Key Success Factors and Core CapabilitiesKey Success FactorsIntroduction and execution of e-commerceUnderstand economic conditions and reactingAspects of consumer spendingCore CapabilitiesAbility to select and display high-end jewelry to create a sustainable advantageConstantly strive towards innovationCommitment to the highest standards for social and environmental responsibilityOverlap of Tiffanys key success factors and core capabilities

Relative Competitive StrengthHow does Tiffany & Co. measure up against their competition?

ResourcesFinancial stability Large stores in expensive areasStore expansions here and abroad (206 locations)Famous designers

Elsa Peretti Paula PicassoFrank Gehry

AssetsMost 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

ImitationsMany product styles are imitated but none are comparable in quality

Counterfeit goods (streets and eBay)

Tiffany Blue Box is non-imitable

SubstitutesOther symbols of status and success: cars, clothing, cosmetics, hand bags, homesThe 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 StrategyThere are three types of cost strategy:Cost LeadershipDifferentiationFocusThe 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 StructureTiffanys main source of capital is through external investors, not debt financingAs 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 CostingTiffanys 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

Chart1

0.260.131.670.38

0.170.091.510.4

0.250.281.510.42

0.270.271.470.32

0.230.161.180.27

Tiffany's

Zale's

Finlay

Industry

Sheet1

Tiffany'sZale'sFinlayIndustry

20010.260.131.670.38

20020.170.091.510.4

20030.250.281.510.42

20040.270.271.470.32

20050.230.161.180.27

To resize chart data range, drag lower right corner of range.

Debt to Equity ExplainedTiffanys 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

Chart1

1.731.664.51

1.631.573.92

3.171.983.89

1.611.853.89

1.61.693.32

Tiffany's

Zale's

Finaly

Sheet1

Tiffany'sZale'sFinaly

20011.731.664.51

20021.631.573.92

20033.171.983.89

20041.611.853.89

20051.61.693.32

To resize chart data range, drag lower right corner of range.

Leverage Ratio ExplainedThe 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 PositionTiffany 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 ProblemsThe 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 AnalysisA 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 EnvironmentThe 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 EnvironmentThere are two main social classes, consisting of:Upper classUpper-Middle class or aspirational buyers

Missing segment of the consumer base.

The Internal EnvironmentThis consists of the inherent competencies of the firm and the structure of its internal systems and processes. Core CompetenciesKey success factors

For Tiffany & Co., the internal environment has created the foundation of its success.

Realistic Options/ChoicesLocked into the option of only making improvements in their same basic strategy.There are two basic options:Option 1: Broaden Scope Through Lower-Priced JewelryOption 2: Focus on Brand Image and Exclusivity

Option 1: Broaden Scope Through Lower-Priced 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 DisadvantagesAdvantagesIncreases sales and market sharePreserves the missing segment of aspirational buyersStabilizes the company during the recession

DisadvantagesOnly a short-term fixMay compromise the integrity of the brandCould drive away the upper-class consumersCreates 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 long-term success and profitability. Thus, it requires riding out the recession.

Advantages and DisadvantagesAdvantages:Consistent with the brand imageMaintains long-term successUpholds the companys exclusive reputation

Disadvantages:Risk riding out the recessionShort-term loss of profits and market share

Favorable OptionWe 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.

StrategyOur 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.

***********