Last month American Tiffany generated a noticeable information flow. The company published its regular financial report, disclosed it plans for the nearest future and secured support from Russian tennis player Maria Sharapova.
The agreement between the tennis player and the company was signed on the eve of the Open Championship in France. According to the two-year agreement, Sharapova will wear Tiffany earrings and accessories at all events of the Grand Slam. Tiffany designer Elsa Peretti’s earrings in 18K gold (some of the Russian mass media erroneously described them as earrings with 18K diamonds) “Tiffany for Maria Sharapova” will be sold at the company’s stores around the world.
Tiffany & Co reported higher-than-expected results in the first quarter 2008-09 stipulated by strong sales in the APR and Europe and a favorable dollar exchange rate.
The company’s net profit in the three month period ended April 30 grew 19% totaling $64.39 million, or 50 cents per share (vs. 39 cents per share in the year-ago period).
Tiffany’s sales rose 12% to $668.1 million, comparable sales rose 7%. On a constant-exchange-rate basis net sales and comparable store sales rose 8% and 3%, respectively.
Sales in Europe were up 38% winding up at $60.1 million, while comparable store sales climbed 21%. APR sales surged 21% to $222 million, including Japan – 13%. Comparable sales in the region went up 15%.
Total sales in the Americas region increased 6% to $373.6 million due to incremental sales from new stores. Comparable store sales grew 1% and in the U.S. were equal to the prior year despite an increase in Tiffany’s New York flagship store.
Tiffany’s Chairman Michael Kowalski informed about plans to open 24 company stores across the world in addition to the 192 stores existed at the end of the reporting quarter. According to Mr. Kowalski, there will appear new, smaller stores (mini-Tiffanies) later this year. The first of them is scheduled to open in the coming autumn in Glendale, California. Among the stores announced by the company to be opened is a store in Qingdao (China, July) and one in the West End of London (autumn).
Selling, general and administrative expenses increased 13% to $277.94 million due to higher labor and occupancy costs (related to new and existing stores) and increased marketing expenses.
According to Mr. Kowalski, the company does not expect an improvement in the U.S. market until later this year. Worldwide sales performance in the current quarter is meeting Tiffany’s expectation which reflects strength in markets throughout Europe and Asia-Pacific (other than Japan).
As MarketWatch writes, the company’s rosy outlook stems in part from rising sales to customers with fistfuls of strong foreign currencies. But it’s also clear that Tiffany’s core customers are not fretting over soaring gasoline or grocery prices. They don’t have to – they’re rich.
Or are they? Some of those emerging from Tiffany’s doors with the company’s trademark little boxes in hand are what the retail industry calls “aspirational” buyers, picking up baubles and bangles that make them feel upwardly mobile, even if they’re not.
The necessity to attract an optimal target group of “aspirational” buyers for luxury brands following the example of Tiffany is discussed in an article placed on brandingstrategyinsider.com.
Tiffany launched the “Return to Tiffany” collection in 1997.
The accessibly priced silver jewellery was so named because every piece carried the “return” message alongside a prominent Tiffany & Co logo. The collection, headlined by a large silver charm bracelet priced $110, sold fantastically well.
Over the next five years, thanks in no small part to this collection, sales at Tiffany rose by two-thirds. The financial markets were impressed and the company’s share price rocketed. By 2002, however, a flaw was growing deep in the heart of the Tiffany brand. The company was selling too much of the wrong product to the wrong people.
At this point the Tiffany story could go in one of two directions. If the firm was being run by the average British chief executive, with no training, experience or appreciation for brand equity, the likely response would be to open a few more stores, set some aggressive sales targets and gradually drive the brand towards disaster. But Tiffany was led by Mike Kowalski, the kind of chief executive we rarely encounter in the UK. Prior to assuming the role in 1999, Kowalski spent five years heading Tiffany’s marketing. So he was experienced enough to recognize that Tiffany’s explosive sales success masked bigger, long-term problems. His diagnosis: the large number of silver customers represented a fundamental threat - not just to the business, but to the core franchise.
Kowalski looked beyond the sales figures and examined brand equity. Using extensive customer research, his team began to identify the precarious position Tiffany was now in. High-end customers were turning away from a brand that a growing number of them now perceived as targeting younger, less exclusive customers. The research also revealed that Tiffany’s brand associations were switching from high-end luxury to affordable silver accessories. It was also being deluged with young female customers at weekends and its small, private boutiques and attentive staff struggled to cope with this bigger but less valuable clientele. Tiffany’s traditional customer base began to defect and brand equity was eroding.
In 2002, armed with the results of his research, Kowalski raised the prices on all of its most accessible collections, including “Return to Tiffany”. The increase was not a response to rising costs or a desire for higher margins. It was a marketing decision intended purely to reduce sales. This sounds like madness if you are a salesperson. But if you understand brand, and the difference between marketing and sales, it makes perfect strategic sense.
Problematically, the price rises had no discernible impact on sales. So in 2003 and again in 2004, Tiffany drove prices even higher. Finally, with prices up by more than 30%, Kowalski achieved his goal: sales of jewellery under $500 began to decline. Profits took a hit and many analysts questioned the logic of the price increases. Tiffany’s share price plunged in 2004.
It has taken more than three years, but Tiffany is now back on track. New high-end jewellery ranges and VIP invitations to high-value customers are gradually restoring luxury and exclusivity to the brand. Brand equity has been restored and the share price has begun to revive.
Mike Kowalski exemplifies all the qualities of a brand-centric chief executive. Take the long-term view: it’s better to have 20% of the market forever than 60% for five years. Look at customer research as well as sales figures - who is buying and why? Don’t be afraid to disappoint shareholders in the short term; they don’t understand brand-building – that’s why they are investors not marketers. Most important, prioritise brand equity over everything else. Always, brandingstrategyinsider.com says in conclusion.
