Few companies have bounced back from the recession like Tiffany & Co., whose share price has quadrupled in the past two years as shoppers around the world filled up its powder-blue boxes with pricey baubles, Rapaport says. Now comes the hard part: maintaining that momentum.
To do that, the most famous U.S. jeweler is redoubling its efforts overseas, a priority signaled just a week ago by the arrival of Frederic Cumenal. The new executive vice president is expected to succeed retiring president James Quinn in 2012. Cumenal was lured away from French luxury goods giant LVMH Moet Hennessy Louis Vuitton.
Understanding is key
"He really understands the global luxury consumer, and we think that will be a big benefit for us as we continue to expand in Asia Pacific, Europe, Russia, the Middle East and India," said Mark Aaron, vice president of investor relations at Tiffany.
On the face of it, there's little hurry. Earlier this year, the company reported that worldwide sales for November and December jumped 11 percent, to $888.5 million, compared with 2009. On March 21, analysts expect Tiffany to report 2010 revenues of almost $3.1 billion, up 15 percent from 2009. But the 174-year-old jeweler has its share of troubles--from the soaring cost of raw materials such as gold and diamonds to the loss of younger, entry-level luxury shoppers.
Cumenal's arrival is part of an increasing shift in focus toward emerging markets. In addition, the retailer famous for its association with lavish spending is scrimping itself--drastically reducing its average store size to save on rent. It is also widening its offerings, adding everything from its first line of purses to trendy yellow diamonds.
Acquisition possible
In fact, Tiffany may be an attractive acquisition target. LVMH's purchase of jeweler Bulgari spurred speculation that Tiffany could be acquired by French holding company PPR or Swiss firm Richemont.
The moves come at a time when Tiffany is facing challenges.
To maintain profit margins in the face of rising costs of materials, Tiffany raised its prices in 2010 by about 10 percent, analysts estimate, and upped them yet again in January.
In addition, sales of Tiffany's lower-priced silver jewelry, which represented almost a third of sales in 2009, have dropped as entry-level luxury shoppers--who dabbled in buying upscale brands before the recession hit--have cut back. Even worse, some observers say that the scale of Tiffany's success is overblown. They say that much of it is due to nothing more than a massive consolidation of the jewelry industry after many smaller competitors folded during the recession. In the New York area, such well-known names as Fortunoff, Finlay Enterprises and Whitehall Jewelers have all vanished.
"A lot of mom-and-pop stores were forced out of business, and that's an opportunity for those who remain standing, especially Tiffany," said Jennifer Milan, an analyst at Sterne Agee & Leach.
Tiffany also made its share of mistakes in recent years, buying brands such as a cruise ship-related jewelry line called Little Switzerland and stocking more lower-priced goods.
"All the while, Tiffany was trying to apply their processes to other businesses, but they came to understand that their brand is incredibly special and unique," said David Schick, an analyst at Stifel Nicolaus. "There's a big, worldwide appetite for it."
Having learned its lesson, Tiffany has now brought in Cumenal, who was previously chief executive of LVMH's Moet & Chandon champagne business. There, he took a brand whose sales had peaked in its home market and achieved sales growth in markets as far away as Australia.
Frenchman to carry flag far
At Tiffany, the Frenchman is expected to help lead the jeweler's plan to more than double its present 14-store foothold in China in the next few years. The company is also planning to open 21 stores in Europe, where it currently has 29 and where sales growth over the past two years has averaged 13.2 percent, according to Bloomberg data. Other countries, where the jeweler has little or no presence, including India and Russia, are also being eyed for possible expansion.
"They're not only benefitting from the strength of the Chinese consumer, but from that consumer traveling to places like Europe and the U.S. and spending a lot of money," said Milan.
The majority of these future stores will be in a smaller format of nearly 3,700 square feet--less than a quarter of the 15,000-square-foot footprints of previous years--and will contain less storage space and less large jewelry and china. Analysts applaud the shrinkage, hoping the move will drive a significant improvement in margins.
"We have better capabilities to replenish inventories, so we don't need the extra space," said Aaron. "And we save a lot on rent."
In addition, Tiffany is also banking on new high-end products to attract more buys from its wealthy customers. In the fall, it introduced a handbag line, with prices ranging from $100 to $5,000, in a dozen U.S. stores. The jeweler also launched a collection of jewelry featuring yellow diamonds to cash in on the colored-gemstones craze in the celebrity world.
"They have great [fresh offerings] with the leather and jewelry," said Schick. "They have done a great job with the handbags."
