After last quarter’s fairly shallow fall in sales, Tiffany is once again in strong negative territory with a two per cent decline in total revenue.
This was driven by a very weak same store performance coupled with a deterioration in sales across almost every region. The mitigating circumstance is, once again, the strong US dollar which has dragged down growth. On a constant currency basis the results look more positive with every region, bar the Americas, in growth and contributing to a four per cent increase in total sales. Even comparable sales managed to notch up growth of one per cent on a constant currency basis.
The Americas was the one region which did not manage to post growth on a constant currency basis. Much of this decline is from the US market, which remained particularly lacklustre during the quarter, something the company attributes to the strong dollar depleting tourist numbers and spending. While there is certainly some truth in this assertion, there are other factors at play. One of these is a more competitive environment for fashion jewellery – an important part of the company’s sales mix – which has seen middle-income and affluent American consumers shop around more. And shop at Tiffany less.
In a sense, Tiffany has lost relevance with some more moderate spending shoppers.
That said, Tiffany has not been idle in trying to improve its relevance to consumers. The fashion focused collection, Tiffany T, designed by Francesca Amfitheatrof, has sparked interest and has had good global growth so far. The range encompasses a traditional selection of products – bracelets, necklaces and rings – with prices spanning an accessible $350 to a more premium $17,500.
Encouraged by the success of this, Tiffany has been actively enhancing other ranges and collections, including Victoria and Bow fine jewellery. It has also introduced some sub-$500 price points across its Infinity and Return to Tiffany collections, no doubt in an effort to reduce its reliance on high spending tourists and increase its appeal to those consumers looking to spend more moderate amounts. As good as all these things are, Tiffany still has some way to go in communicating the various changes to consumers.
Deepening the customer base is a critical element of Tiffany’s future success, especially so as it only intends to grow global square footage by two to three per cent per year for the foreseeable future. This may be a reasonable level of expansion, but it is not one that will will transform the company’s top or bottom line.
Indeed, while Tiffany’s net income seemingly rose by 138 per cent this quarter, this is largely down to a loss on the extinguishment of debt during the same period in 2014. When this is excluded, income shrank by 31 per cent – something that indicates Tiffany has much work to do to restore its fortunes.
- Neil Saunders is CEO of retail consultancy Conlumino.
