Beruflich Dokumente
Kultur Dokumente
Case Agenda
Is blue box packing a great strategy?
Given that spending in the luxury retail market has demonstrated
resilience during and post recessionary times, how can Tiffany
continue to grow? Will it be able to maintain a prominent brand in
future?
Company History
Timeline
1837: Founded in New York by Charles Lewis Tiffany and John F.
Young: The Blue Box introduced
1910-1940s: 57th street and Fifth Avenue Flagship store
2000: Tiffany and Co. foundation established
They sell jewelry, timepieces, silverware etc using their key stores in
high profile locations. 90% of their revenue is from jewelry.
Out of 90%, 57% revenue is generated from their affordable line
collection.
PORTERS V FORCES
Competitive Rivalry
a) Market is fragmented with Tiffany having the second largest
market share after Signet
b) People can go to other retailers such as Cartier, Signet or Blue
Nile
c) Even the chain stores, like Costco is posing huge competition not
because of cheap cost and good quality but also good return
policy.
Customers can get bigger carat diamonds of next to similar
quality at half a price; the only difference is the brand and bi big
blue box packaging.
Supplier Power
a) Few diamond suppliers in the world, so they have power to
dictate prices.
b) Moreover they do diamond cutting and polishing on their own
Buyer Power
a) Buyers have high disposable income
b) They feel connected with the brand
c) Able to choose from retailers and easily switch, so emphasis on
experience
Threat of Substitutes
a) When buying engagement rings, there are few substitutes
b) When buying other designer pieces and accessories then wide
range of options and retailers.
Barriers to Entry
a) High cost of capital to start a luxury jewelry business
b) Consumers likely to shop from a brand that they know
Economic Factors:
a) Asian markets are growing extensively especially China. It is the
fastest growing and second largest luxury market in the world.
b) America is the largest diamond market followed by China.
Social factors:
a) Spending on luxury goods has increased
b) Brands are more important to customers than products.
Technology:
All jewelry designers use Computer Aided Design
Human Capital:
a) Sales training
b) Design team, which includes leading designers Elsa Peretti, Frank
Gehry and Paloma Picasso.
Tangibles:
a)
b)
c)
d)
Inventory
Real Estate
Prestigious store locations
Metal and gemstone mines.
Competitive Advantage
a) Product differentiation
b) Brand loyalty
Weaknesses
No Promotion model
(Average engagement price range
$10,000 three times the market
average, never offers any
discounts or promotions, etc.)
Increase in debt and interest
payments
($4,00 M long term debt since Dec
2008, increase in interest expense
to $26M from $4.2M in 2008)
Opportunities
Threats
Economic Recovery
(Jewelry market grow by 4%,
even in economic troubles market
was $48 billion in US)
Bridal jewelry
(2009-2025, About 80M people
are reaching marriageable age)
The Asian Factor
(Growing high net worth
individuals in Asia Pacific. 2.9 M
millionaires in NA, 2.8M in EU and
2.4M in Asia Pacific)
Small Store Format
(From 15,000 sq ft, attain high
productivity of $1,000 per sq ft)
Tiffanys for Men
(Mens toiletries segment is $2.4
B and growing at 3%)
Margin Pressurized
(Jewelry price inflation at
producer level by 6.7% and retail
price decline by 0.4% due to
economic conditions, thus
shrinking profit margin for jewelry
retailers)
Counterfeit crime hurting
brand image
(Australian Customs and Border
Protection Service seized 10,778
fake Tiffany items generating loss
of $8.5 B and damage to brand)
Disappointing performance in
JP market
(Low customer confidence in JP
market, 2005 and 2007 revenues
dropping by 22.3% and 18.6%,
closed 7 store in Japan)
COMPETITOR SWOT
BLUE NILE
BULGARI
Core Capabilities
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.
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.
Tiffanys main source of capital is through external investors, not debt
financing
As previously stated, the main cost is the cost of raw materials.
The stronghold 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
Tiffanys 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
The main strategic issues that Tiffany and Co. must consider involves:
The state of the economy
Realistic Options/Choices
There are few basic options:
Option 1: Broaden Scope Through Lower-Priced Jewelry
Option 2: Focus on Brand Image and Exclusivity
Option 3: Expand distribution channels
Option 4: Expand into Europe and Asia
Disadvantages
Disadvantages
Disadvantages
FINAL THOUGHTS
To ensure profitability, Tiffanys top management must create a
strategy to grow with this market trend: customers are spending more
money in the luxury retail market.
It should go with a strategy mix where it focuses on brand image and
broaden its market share to an extent, by low medium priced jewelry
and via distribution channels. Moreover in near future it should plan to
grow its business by focusing on opening new stores in Asia and
Europe.
So a policy mix that suits its financial strength and goals should be
used.
IMPLEMENTATION STRATEGY