Jeweller Tiffany & Co’s latest results represent a disappointing end to what has been a challenging year for the company.
The fact that worldwide net sales declined by 2 per cent even on a constant currency basis neatly indicates that the weakness is not solely down to the appreciating dollar. This point is underpinned by the fact that on a constant exchange rate basis all regions – with the exception of Japan – posted negative same store sales growth.
Looking across the geographies the most problematic region remains the Americas where total sales declined by 8 per cent for the quarter; on a comparable store basis the decline was 10 per cent. While it may be true that some of this is down to weaker tourist spending in key cities where Tiffany has its flagships, it is also the case that Tiffany is struggling to maintain market share and relevance among middle-income and affluent American consumers.
That this is so is partly down to a much more competitive environment for fashion jewellery, which constitutes an important part of the company’s sales mix. The growth of Pandora across the US, for example, has helped to take some custom away from Tiffany. Although Pandora’s US growth is now on a slower trajectory, we believe it is still gaining market share.
While Tiffany still has a strong brand, it is notable that the brand resonates most with affluent older shoppers. Among affluent younger shoppers the brand is not viewed negatively but is seen as representing ‘old world luxury’ which does not entirely chime with their lifestyles and values. This means Tiffany often loses out among this important, and growing, group.
Tiffany has tried to address this problem with the introduction of new fashion focused collections and more accessible introductory price points across some ranges. However, while the changes have been well received, they have been sufficient to change perceptions.
These are clearly long term issues which have acted as a drag on Tiffany for some time. However, they were exacerbated during the fourth quarter by the lower levels of holiday gifting of jewellery in the US. For a brand like Tiffany, where lavish gifting is an important driver of buying, such a trend was distinctly unhelpful.
Looking ahead, the upcoming fiscal year will be one in which the declines start to bottom out – especially after the second quarter. However, it is unlikely that the year will be one of much progress and Tiffany will end the year flat to slightly down.
Growth will only come when Tiffany finds a way to reconnect its brand to the American consumer.
*Neil Saunders is CEO of Conlumino.
